The BSE Sensex fell for a second consecutive session on Monday as interest rate-sensitive stocks were hit a day before the RBI reviews monetary policy, while broader sentiment was hurt after a radical bailout plan for Cyprus spooked global markets.
The surprise decision by euro zone leaders to partially fund a bailout of Cyprus by taxing bank deposits, sent shockwaves through financial markets on Monday by shaking depositors' confidence in banks across Europe. The MSCI Asia-Pacific index excluding Japan fell 1.7 percent.
Sentiment was also hit after Moody's Investors Service said India's sustained food inflation was a negative for the country's sovereign ratings as it exacerbated macroeconomic imbalances.
All eyes are now on the Reserve Bank of India's policy review on Tuesday amid expectations the central bank will lower interest rates by 25 basis points. Dealers also said a separate cut in the cash reserve ratio, a key liquidity tool, was also possible.
"RBI rate cut announcement may not impact much, but stance on further rate cuts would," said Deven Choksey, managing director of K R Choksey Securities in Mumbai.
The Sensex fell 0.69 percent, or 134.36 points, to 19,293.20, marking its lowest close since March 6.
The Nifty fell 0.64 percent, or 37.35 points, to 5,835.25.
The RBI cut interest rates and the cash reserve ratio by 25 basis points each in end-January, but surprised investors with a cautious stance on monetary policy outlook.
That is giving added importance to the central bank's statement that will accompany its rate decision on Tuesday.
Banks were also hit, with private sector lenders still reeling from money laundering allegations made by a journalist last week.
ICICI Bank Ltd
Among other decliners, state-run oil retailers fell after lowering petrol prices by 2 rupees per litre, while keeping diesel prices steady.
Indian Oil Corp Ltd
Shares of Coal India
Jet Airways Ltd
However, among gainers, Larsen & Toubro Ltd
A spokesman for L&T declined to comment when contacted by Reuters.
Bajaj Hindusthan Ltd