The BSE Sensex snapped a six-session rally early on Monday as some investors booked profits after the main index rose more than 11 percent this month.
Power equipment maker Bharat Heavy Electricals Ltd (BHEL.NS) fell as much as 9.2 percent after posting a lower-than-expected quarterly profit.
Energy major Reliance Industries (RELI.NS) and ICICI Bank (ICBK.NS) were among the top losers after last week's sharp rally.
Nothing can rise endlessly. Therefore, what you are seeing now is the consolidation. The profit-taking has begun, said D.D. Sharma, chief executive officer at Risk Capital Advisors.
The market will continue to rise going forward if the government were to aggressively pursue policy action needed for the economy, he said, calling Monday's fall a technical drop.
At 11:18 a.m. (0548 GMT), the main 30-share BSE index was down 1.3 percent at 17,002.18 points, with 20 of its components falling. The index touched its highest closing level in 11 weeks on Friday.
State-run BHEL's shares were trading 7.46 percent lower at 253.15 rupees after it reported a lower-than-expected 2.1 percent rise in quarterly profit on Friday.
Macquarie cut its target price for BHEL to 233 rupees from 314 earlier, saying a nightmare scenario was playing out for the company. We are now faced with worst case scenario on order inflows with 35 percent decline in FY12, Macquarie said.
BHEL's performance pulled down shares of rival Larsen & Toubro Ltd (LART.NS), which fell 1.6 percent.
Any imposition of import duty on power equipment in the annual federal budget will be a boost for BHEL and Larsen & Toubro, Sharma of Risk Capital Advisors said.
The ministry of heavy industries has been pushing for charging higher duty on imports of all power equipment, which, if imposed, will make domestic makers more competitive against largely Chinese imports.
Energy major Reliance Industries, which contributes about a tenth to the benchmark index, fell 1.6 percent to 806.95 rupees, ahead of an up to $2.1 billion buyback that opens on Feb. 1.
Lenders ICICI Bank (ICBK.NS) and HDFC Bank (HDBK.NS) were each trading about 1.9 percent lower, while top lender State Bank of India (SBI.NS) was down 0.3 percent.
The 50-share NSE index was down 1.07 percent at 5,149.25. In the broader market, there were about 1.3 losers for every gainer, with 256 million shares changing hands.
Asian shares inched down as markets cautiously tuned in to a likely debt swap deal for Greece that is crucial to avoiding a messy default and eyed yet another European summit meeting.
The MSCI's measure of Asian markets other than Japan was down 0.65 percent, while Japan's Nikkei was down 0.68 percent.
STOCKS ON THE MOVE
* Turnkey power projects contractor Jyoti Structures (JYTS.NS) was trading 4.7 percent lower at 47.70 rupees after the company posted slower-than-expected sales growth in October December.
* Bhushan Steel (BSSL.NS) rose as much as 2 percent to 356.95 rupees after the company said its board has approved raising up to 7 billion rupees through a rights issue of shares.
MAIN TOP THREE BY VOLUME
* Suzlon (SUZL.NS) on 15.2 million shares
* Lanco Infratech (LAIN.NS) on 14.9 million shares
* GVK Power and Infrastructure (GVKP.NS) on 10.6 million shares.