Shares fell on Wednesday to hover around two-month lows, weighed by banks and energy companies, as risk sentiment weakened over worries of a global recession.
The NSE Nifty 50 index fell 0.4% to 16,940 as of 0503 GMT, while the S&P BSE Sensex was down 0.45% to 56,891.95.
Asian share markets slid on Wednesday as surging borrowing costs fed fears of a global recession, spooking investors into the arms of the safe-haven dollar.
With rising interest rates and bond yields, the investment barrier for equities has risen, said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
Meanwhile, the fear of recession due to very high interest rates is adding pressure, he said.
"While India has been sharply outperforming (global markets), it is not immune to global risks and now there is a bit of catching up, with foreign investors turning huge sellers," Khemka said.
Foreign institutional investors sold a net 28.24 billion Indian rupees ($345.63 million) of Indian equities on Tuesday, while domestic investors purchased 35.05 billion rupees shares, as per provisional data available with the National Stock Exchange.
"Indian equities have shown resilience relative to most of advanced and emerging market peers ... Notably, retail participation continues to increase," State Bank of India’s economic research department said in a note.
The Nifty and Sensex are down over 2% so far this year.
Meanwhile, investors are awaiting monetary policy decision from the Reserve Bank of India, which begins its three-day policy meeting Wednesday.
Ahead of the big RBI event, markets will take precautionary positions, Khemka added.
The metals index was down 0.6%, while the energy index fell 1%.
Sun Pharmaceutical industries was the top Nifty 50 gainer, rising 2%, while Oil & Natural Gas Corp the top loser, falling 2.3%.