The benchmark Sensex fell for the fifth day in a row on Monday, declining 113 points in a late sell-off as investors turned cautious ahead of the RBI policy review meeting.
State Bank of India, the country's largest lender, HDFC Bank and ICICI Bank were among the shares that dragged the Sensex lower. The fall would have been more pronounced but for gains in HDFC, Larsen & Toubro and Reliance Industries shares.
Sectors that fell were FMCG, realty, metals and banks.
Cigarette major ITC tumbled 3.63% and was the top loser on the Sensex after CLSA cut its earnings per share estimates by around 2%.
The 30-share S&P BSE Sensex opened on a positive note and touched a high of 20,771.38 before profit booking set in. The index closed down 113.24 points, or 0.55%, at 20,570.28. It has lost 324 points in the past five sessions.
The 50-share CNX Nifty on the National Stock Exchange dropped 43.80 points, or 0.71%, to end at 6,101.10. The SX40 index of the MCX Stock Exchange closed almost 60 points down at 12,249.69.
"Nifty opened on a flat note and witnessed selling pressure for rest of the trading day. Intraday volatility was seen ahead of the RBI's monetary meet tomorrow and also as FO expiry day is approaching this week," said Nidhi Saraswat, Senior Research Analyst at Bonanza Portfolio Ltd. "Further, profit-booking aggravated the selling sentiment."
The Reserve Bank of India may increase a key interest rate to 7.75% from 7.5% in its Second Quarter Review of Monetary Policy on Tuesday to contain rising prices, while also announcing steps to ease liquidity, according to some banks.
In September, RBI Governor Raghuram Rajan surprised the markets by increasing the repo rate by 0.25% in a bid to check inflation.
The market may also remain volatile as investors in the futures and options segment decide whether to roll over their positions on the expiry of equity derivative contracts on Thursday, a broker said.
Key indices in China, Taiwan, Hong Kong, Singapore, Japan and South Korea rose after weaker-than-forecast US consumer confidence spurred bets the Federal Reserve will maintain its stimulus programme.
European markets were mixed in early trade as indices in Germany and UK moved up, while France's CAC was quoted lower.
In the domestic market, 22 Sensex shares declined. Apart from ITC, the losers included Sesa Sterlite (-3.26%), Tata Steel (-2.94%), State Bank of India (-2.41%), Hindalco Industries (-1.97%) and Hero MotoCorp (-1.86%).
The gainers were Larsen, which rose 1.89%, HDFC 1.35%, ONGC 1.02% and Reliance Industries 0.49%.
Among the S&P BSE sectoral indices, FMCG dropped 2.56%, followed by realty 2.1%, metal 1.63%, bankex 1.2% and power 1.16%.
The market breadth remained negative after 1,408 shares ended with losses, 1,004 finished with gains and 161 ruled steady.
Total turnover on the BSE dropped to Rs 1,685.30 crore from Rs 1,744.49 crore last Friday.
Foreign institutional investors continued their buying spree and invested a net Rs 626.99 crore on shares on Friday, according to provisional data from the stock exchanges.