The BSE Sensex fell more than 1 percent on Monday, extending last week's 2 percent decline, as high global oil prices revived concerns about inflation in the country that imports about 80 percent of its oil consumption.
Lenders such as ICICI Bank and bigger rival SBI led the losers on worry price pressures could make it difficult for the RBI to ease monetary policy.
Automakers and steel producers also fell as investors took profits after the main stock index posted its first weekly decline in 2012 last week.
High oil prices, forthcoming federal budget and results of elections for five states are weighing on investors' mind, said Jigar Shah, senior vice president at KIM ENG Securities.
Brent crude stayed near 10-month highs above $125 on Monday due to concerns over supply disruption as tension rose over Iran's disputed nuclear programme.
At 11 a.m. (0530 GMT), the main 30-share BSE index was down 1.09 percent at 17,727.54, with 23 of its components falling. It had opened up 0.3 percent.
The benchmark is still up nearly 15 percent since the end of December on foreign fund inflows of about $5.5 billion.
The government will present its budget on March 16 for the fiscal year that begins on April 1, amid slowing economic growth and mounting concerns about public finances.
The election results due on March 6 in five states of Manipur, Uttarakhand, Goa, Punjab and Uttar Pradesh would give an indication about the outlook for the Congress party, which heads the federal coalition, before nationwide elections in 2014.
ICICI Bank fell 2.4 percent and State Bank of India shed 2.1 percent.
Tata Steel and Steel Authority of India (SAIL.NS) fell by more than 3 percent.
Top carmaker Maruti Suzuki (MRTI.NS) dropped 1.1 percent, while utility vehicle and tractor maker Mahindra & Mahindra (MAHM.NS) lost 2.2 percent and Tata Motors (TAMO.NS) fell almost 1 percent.
Sterlite Industries (STRL.NS) was down 0.7 percent after opening up 6.2 percent after its parent Vedanta said on the weekend it would merge the company with sister concern and iron ore miner Sesa Goa to create Sesa Sterlite.
Sesa Goa was down 9 percent at 206.50 rupees.
The boards of the two companies have approved to issue three shares of Sesa Goa for every five shares held in Sterlite.
The 50-share NSE index was down 1.03 percent at 5,373.20. In the broader market, there were about 4.06 losers for every gainer on volume of 267 million shares.
Kingfisher Airlines rose as much as 3.3 percent after UK-based the Times newspaper cited the company's chairman as saying the struggling airline is talking with two foreign carriers about a potential rescue package that could be announced within days.
Elsewhere, the MSCI's measure of Asian markets other than Japan was down 0.7 percent.
STOCKS ON THE MOVE
* SKS Microfinance Ltd (SKSM.NS) was up 0.6 percent at 129.40 rupees, after the microlender said it has raised 787 million rupees from a state-run bank.
* Subex Ltd (SUBX.NS) rose as much as 1.6 percent after the telecom applications provider said the Reserve Bank of India has approved extension of maturity of all outstanding foreign currency bonds to July 9.
TOP 3 BY VOLUME
* Lanco Infra (LAIN.NS) with 24.5 million shares
* Sterlite Industries with 16.6 million shares
* IFCI Ltd (IFCI.NS) with 8.3 million shares