The BSE Sensex fell for a second straight session on Monday to its lowest close in 1-1/2 weeks on risk aversion among investors due to tensions in Iraq and Ukraine, with domestic-oriented stocks such as Larsen & Toubro Ltd taking a hit.
Brent crude rose above $113 per barrel to a near nine-month high as Sunni insurgents advanced in Iraq, intensifying concerns over a potential disruption in oil exports, while Ukraine also added to investors' concerns.
Some investors said rising crude oil prices coupled with potentially weak monsoons could push up domestic inflation and aggravate India's current account deficit, prompting them to pare down some positions after record highs hit on Wednesday.
Also, contrary to the moderation in India's consumer price index, wholesale price-based inflation in May accelerated to a five-month high of 6.01%, driven up by higher food and fuel costs, government data showed.
"Iraq and Ukraine will lead to at least 2-3% correction in the market ahead of interim budget in July. The trend, however, remains up and it's best to buy on declines," said UR Bhat, managing director, Dalton Capital Advisors, which advises foreign investors in India.
The benchmark BSE Sensex closed down 0.15%, or 37.69 points, at 25,228.17.
The broader Nifty fell 0.11%, or 8.55 points, to 7,542.10.
Both the indexes marked their lowest close since June 5.
Also, investors remained cautious awaiting direction from a US Federal Reserve meeting that concludes on Wednesday.
Markets will be watching for any signals on when the US central bank might begin hiking interest rates.
Stocks linked to domestic economy led the falls. Larsen & Toubro fell 2.1% while Housing Development Finance Corp ended lower 2%.
State Bank of India fell 1 percent while Punjab National Bank declined 0.9%.
In other blue-chips, Reliance Industries fell 1.5% while ICICI Bank 1%.
However, exporters gained after the rupee weakened to its lowest level in 1-1/2 month.
Among software exporters, Infosys gained 1.8%, while Wipro advanced 1.1%.
Tata Consultancy Services Ltd gained 2.5% after the company kept its outlook on first-quarter margins and revenue unchanged on Friday.
Drugmaker Biocon rose 1.9%, while Sun Pharmaceutical Industries ended 2.5% higher.