The BSE Sensex fell more than 1 percent on Monday on worries a lower-than-expected showing by the Congress party in the Uttar Pradesh elections would make it difficult for the government to revive stalled reforms.
The results are due on Tuesday but voter surveys released after the phased, month-long poll ended on Saturday indicated that Rahul Gandhi failed to deliver the election comeback he had promised for the Congress party in the most populous state of Uttar Pradesh.
The exit poll results are not looking good for the Congress. There is a valid concern that if the party does badly, there will be a question mark over any reform plans by the government, said Neeraj Dewan, director at New Delhi's Quantum Securities.
The trend will only be known tomorrow, but I expect markets to be volatile until then.
By 10:10 a.m. (0440 GMT), the main 30-share BSE index was down 1 percent at 17,460.12, with 26 of its components lower.
Banks slipped on ebbing hopes of an interest rate cut in the Reserve Bank of India's policy review on March 15. Analysts said rising crude prices could force the central bank to maintain status quo, on fears inflation may creep up again.
State Bank of India (SBI.NS), the country's largest lender, and rivals ICICI Bank (ICBK.NS) and HDFC Bank (HDBK.NS) shed fell 1.9 percent each.
A cut in interest rates would have helped boost credit demand for banks.
Oil and Natural Gas Corp (ONGC.NS) was down 1 percent at 277.60 rupees after the government's failure to sell all of the shares in its $2.6 billion auction, with state-run Life Insurance Corp having to bail out the issue.
It is worrying that foreign investors were not interested in ONGC shares. Rising crude prices will heighten the subsidy sharing concerns further, Quantum's Dewan said.
Tata Motors (TAMO.NS) bucked the trend and rose 1.5 percent after sources told Reuters its Jaguar Land Rover unit is seeking regulatory approvals for a joint venture with China's Chery Automobile Co.
In the broader market, there were 829 losers for 435 gainers on total volume of 156.3 million shares.
The 50-share NSE index was down 1 percent at 5,306.75.
STOCKS ON THE MOVE
* Raymond (RYMD.NS) rose 4.4 percent to 365.95 rupees after the Economic Times newspaper reported that the private equity arm of luxury product group LVMH is in talks to invest about $150 million in the Indian apparel-maker's unit. Neither companies could be reached for comment.
* JSW Steel (JSTL.NS), India's No. 2 steelmaker by capacity, fell 2.8 percent to 764.40 rupees over worries about its operations after the company said the quality of iron ore offered in e-auctions is deteriorating substantially.
TOP THREE BY VOLUME
* Suzlon Energy (SUZL.NS) on 14.2 million shares
* Lanco Infratech (LAIN.NS) on 8.4 million shares
* Reliance Power (RPOL.NS) 7.3 million shares