Investors tread cautiously to reports of European leaders working on new ways to limit the fallout from the euro zone sovereign debt crisis, with most Asian markets trading 1 to 3 percent lower.
Financial stocks and Reliance Industries led the decline, while shares in metals and mining firms slipped after copper futures hit 14-month lows in London and Shanghai.
At 11:19 a.m. (0549 GMT), 30-share BSE index was down 1.8 percent at 15,877.09, with 28 of its components trading lower. It opened 0.2 percent higher, but had quickly slipped into negative territory.
"When the global situation is so precarious, and the domestic investment climate is also not much better, buyers are choosing to stay away from the market," said D.D. Sharma, senior vice president at Anand Rathi Securities.
"This is actually the time at which long-term funds should be coming into the market," he added.
Financial stocks came under pressure on concerns that rising interest rates and slowing credit demand will impact growth outlook for the sector.
Largest lender State Bank of India fell 1.2 percent, while private sector rivals ICICI Bank and HDFC Bank were down 1.1 percent and 3 percent each. The sectoral index slipped 1.9 percent.
Energy major Reliance Industries, which has the heaviest weightage in the main index, extended its losses from the previous session as investors continued to worry over the company's woes in its oil and gas business.
Gas output from its key blocks off India's east coast has been slowing, while a federal auditor recently criticised Reliance over violations in the development of the natural gas field.
The stock was down 2.6 percent at 750.70 rupees, taking its total losses in 2011 to 29 percent.
Metal and mining shares declined after copper futures in Shanghai dived to their lowest since August 2010, matching the fall at the London Metal Exchange in the previous session, on worries of likely slowing demand.
Coal India fell 4.4 percent, while non-ferrous metals producers Hindalco and Sterlite Industries (STRL.NS) declined more than 4 percent each.
Shares in Wipro, India's No. 3 software services exporter bucked the trend, rising 1 percent to 343 rupees.
Earlier on Monday, the Economic Times reported the company was considering selling some assets of its U.S. unit Infocrossing, in a deal worth up to $400 million. The company declined to comment on the report.
In the broader markets, 1,171 declines led 195 advances on moderate volume of 148.9 million shares.
The 50-share NSE Nifty was trading 1.5 percent lower at 4,794.45 points.
In Asian markets, Japan's Nikkei fell 1.9 percent, while the MSCI's measure of Asian markets other than Japan was down 2.5 percent.
STOCKS ON THE MOVE
* State-run Rashtriya Chemicals & Fertilisers rose 2.2 percent to 74.40 rupees after a top official said late on Friday that the government is planning a follow-on share sale in the company in the second half of the next fiscal year.
* Ind-Swift Laboratories Ltd rose 1.2 percent to 84.60 rupees after a top official with the pharmaceutical ingredient-maker said on Friday it had received approval to sell seven products in Australia.
TOP THREE BY VOLUME ON NSE
* Jaiprakash Associates on 6.1 million shares
* Unitech on 5.9 million shares
* IFCI on 3.8 million shares
(Reporting by Prashant Mehra; Editing by Aradhana Aravindan)
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