What It Means
Buy the rumor, sell the news describes a price moving in anticipation of an expected event, then reversing once that event is officially confirmed. The "rumor" is the market's expectation, built up over days or weeks before the event. The "news" is the actual announcement. By the time the news lands, its effect on price has usually already happened.
How It Works
Prices move on new information, and an anticipated event stops being new information by the time it's confirmed. Traders act on the expectation beforehand, buying into a rumoured rate cut, a likely-strong earnings season, or an expected policy announcement, and that buying itself pushes the price up ahead of the actual event. Once the event is confirmed exactly as expected, there's no fresh surprise left, only a profit sitting on the table for whoever bought earlier. That profit-taking, not the news being bad, is usually what triggers the pullback.
Example
Say the market spends two weeks expecting the RBI to cut the repo rate by 25 basis points at its next policy meeting. Bank Nifty climbs through those two weeks on that expectation, moving from around ₹51,000 to ₹52,400. The RBI then actually announces the cut, exactly as expected. Bank Nifty doesn't rally further. It drifts down to ₹52,000 the same day. The rate cut, the rumor, was already bought. The announcement, the news, got sold.
Warning
Assuming the price fell because the news was secretly bad. Most of the time the news was perfectly fine, the price simply had nothing left to react to because the market had already front-run it.