The BSE Sensex fell for a second straight session on Monday, marking its biggest daily fall since July 27, as profit-taking, coupled with business outlook concerns, hit recent outperformers such as Reliance Industries.
DLF Ltd slumped after anti-corruption activists accused the biggest property developer of improper dealings with Robert Vadra, son-in-law of ruling party chief Sonia Gandhi. This was denied by both the company and Vadra.
Indian shares were due for a consolidation, analysts said, as the focus shifts to the quarterly earnings reporting season, after the Sensex hit 17-month highs last week. Infosys is due to report earnings on Friday.
Comments from Finance Minister P. Chidambaram about plans to unveil a "feasible" fiscal plan and his support for the government's recent reform measures had muted impact given they were seen as re-iterating his previous stance.
"Markets are getting consolidated. From Friday, earnings will begin. The street will focus more on quarterly numbers," said Vaibhav Sanhghvi, director at Ambit Capital.
"From now on, markets will get aligned and will react the way the numbers come."
The BSE index fell 1.21 percent, or 229.48 points, to end at 18,708.98 points after hitting on Friday its highest intraday level since May 2, 2011.
The 50-share Nifty fell 1.23 percent, or 70.95 points, to end at 5,676 points, having hit its highest intraday level since April 28, 2011 on Friday.
Infosys fell 1.5 percent, down for a fourth consecutive session, ahead of its Q2 results expected on Friday.
Investors worry the software service exporter will have to cut its guidance to reflect the stronger rupee and a potential weakening in global demand.
Reliance Industries fell 4.5 percent after Morgan Stanley cuts its rating to 'underweight' from 'equal-weight', citing expectations for weaker refining margins and valuation concerns among other factors.
Shares in the energy conglomerate had gained 2.9 percent over the previous three sessions.
Profit-taking hit Indian banks after recent fiscal and economic reforms had sparked a rally in the sector by raising the prospect of potential interest rate cuts from the central bank.
State Bank of India shares fell 3 percent after surging 21.5 percent from the start of September to Friday's close. ICICI Bank dropped 1.4 percent.
India's biggest property developer DLF dropped 7.3 percent, posting its biggest daily fall since February 22, as investors worried about the fallout from the allegations about importer transactions levelled by the activists on Friday.
The company and Vadra, denied the accusations over the weekend.
Shares in Hindalco Industries
However, among gainers, telecom stocks rose after a ministerial panel on Monday approved a proposal to charge mobile phone carriers a one-time fee for their existing second-generation airwave holdings based on a price to be determined by an upcoming auction.
Bharti Airtel rose 1.8 percent, while IDEA Cellular
Shares in Indian infrastructure companies gained as the government continued its push to bolster the sagging sector, announcing plans to set up a special body this week to speed up projects in the sector.