They said a broad regional market weakness also contributed to falls ahead of the mid-term economic review with several analysts expecting a 25 basis points hike in short-term interest rates to 5.25 percent.
The Mumbai stock exchange's 30-share Sensex index declined 148.15 points to close at 7,920.80 in low turnover of 24.33 billion rupees (540 million dollars) as 1,330 stocks gained, while 1,100 declined.
"The Reserve Bank is likely to indicate some kind of a hike in interest rates tomorrow (Tuesday) and this is causing concern in the market," said a fund manager with a leading domestic brokerage.
He said there was selling across the board Monday despite foreign funds buying actively in the derivatives market.
The Reserve Bank of India will announce its traditional October to March review of the economy at noon (0630 GMT).
Leading the fall Monday was pharmaceutical firm Ranbaxy Laboratories which dived nearly nine percent after the company on Friday posted a 90 percent fall to 184 million rupees (four million dollars) from 2.0 billion rupees a year ago in net profit for the third quarter to September.
Ranbaxy closed down 34.30 rupees to 355.20.
The country's largest bank, State Bank of India, fell 23.05 rupees or 2.60 percent to 863.75 ahead of the central bank policy review.
The rupee weakened to 45.14 from 45.09 against the dollar last week and the also lost ground against the euro to 53.94 from 54.31.