The main stock index closed down 0.48 percent, or 27.66 points, at 5,748.01, its lowest close since Sept. 18.
'The debt market with some debentures is attracting investors who otherwise would have invested in stocks,' said Prashan Fernando, CEO at Acuity Stockbrokers.
'Those debentures are with a higher return than fixed-deposits and the returns are tax free.'
Lack of clarity in 2014 budget proposals unveiled by Sri Lankan President Mahinda Rajapaksa, who is also the finance minister, also continued to weigh on the sentiment.
The budget aims to spur growth, shrink the budget deficit and expand the stock exchange in Colombo.
The day's turnover was 464.7 million rupees ($3.54 million), above half of this year's daily average of around 850 million rupees.
The banking sector index fell 0.86 percent to a near 10-week low on Tuesday, which analysts attributed to a budget proposal of a 2 percent nation-building tax on banks and the financial sector with effect from January.
The market heavyweight and top conglomerate John Keells Holdings PLC fell 0.83 percent to 216 rupees.
Foreign investors were net sellers of 29.8 million rupees worth of shares. They have been net buyers of 22.56 billion rupees so far this year.
($1 = 131.1500 Sri Lanka rupees)
(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Gopakumar Warrier)
(+94-11-232-5540; Reuters Messaging: email@example.com twitter.com/shiharaneez)