Indian shares falter; investors wait for Modi to deliver

* BSE index falls 0.68 pct; NSE index down 0.56 pct

* Recent outperforms such as Reliance, SBI fall

* FIIs sell for second session in three

By Indulal PM

MUMBAI, May 27 (Reuters) - India's NSE index fell for a second consecutive session as investors continued to book profits in recent outperformers such as State Bank of India while they wait for actual policies from Prime Minister Narendra Modi and his new cabinet.

Arun Jaitley, who was named as India's new finance minister, committed himself on Tuesday to repairing public finances and restoring investor confidence. The close party colleague of Modi will also share the defence and corporate affairs portfolios, although only temporarily.

The new government will need to meet high investor expectations, as prospects of a victory by the Bharatiya Janata Party had sent the NSE index up by 25.8 percent to record highs since Modi was named as the prime ministerial candidate for the opposition party in mid-September.

Overseas investors have been especially strong buyers of the rally, but sold a net $14.3 million on Monday, their second session of sales in three, according to provisional exchange data.

"Market is getting into some sort of correction mode now after the election rally. Now the optimism needs to be matched with the fundamentals. I think market will start counting for the next events such as (macro) policy announcements and RBI policy," said Deven Choksey, managing director, KR Choksey Securities.

The broader NSE index closed 0.56 percent lower at 7,318 points, marking only its third daily fall this month.

The benchmark BSE index fell 0.68 percent at 24,549.51 points.

Shares in State Bank of India fell 2.7 percent, adding to their 1.9 percent fall on Monday.

Lenders, especially public sector ones, have been big beneficiaries of the recent rally given expectations they are primed to benefit from a recovering domestic economy. SBI has gained 48.85 percent so far this year.

Other outperformers also fell. Reliance Industries Ltd closed 1.25 percent lower and Bharat Heavy Electricals Ltd ended down 5.2 percent.

Mid-caps, which recently posted strong gains, also slumped. Unitech Ltd, which gained 77 percent in May, fell 6.6 percent.

Shares in Gail India Ltd fell 7.5 percent after its earnings missed some analysts' expectations. GAIL's January-March net profit rose by 57 percent to 9.72 billion rupees ($165.36 million), and Jefferies said factors including a weak demand environment and subsidy burdens impacted GAIL's earnings, according to a note to clients on Tuesday.

Shares of sugar refiners slumped as sugar futures fell to their lowest in 10 weeks on sluggish demand from bulk consumers ahead of the monsoon season.

However, investors also picked up shares that under-performed the rally, such as exporters that were seen as vulnerable to a stronger rupee

Shares in Infosys Ltd gained 1.27 percent, but were still down 1.5 percent this month, while Dr Reddy's Laboratories Ltd gained 0.5 percent, but was down 14.6 percent so far this month.

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