Indian shares fell about 1.5 percent on Monday on continued selling by foreign investors, while uncertainty lingered about the economic impact of the government's demonetisation move.
Foreign investors, who have been net buyers of $5.43 billion of shares this year, offloaded a net $139.57 million on Nov. 17, taking their selling for this month to $1.33 billion.
The rupee was hovering around its Brexit lows at 68.20 on fears that the strength in the dollar and rising U.S. bond yields since Donald Trump's election to president could accelerate fund outflows from emerging markets.
The government's move to withdraw higher-denomination banknotes is expected to pull down gross domestic product growth from last year's 7.6 percent by as much as 4.1 percentage points, while corporate operating profits are tipped to fall by as much as 40 percent in the current quarter.
"There will be fewer investors carrying long positions into next month as compared to the previous three months," said R.K. Gupta, managing director of Taurus Asset Management.
"Traders expect the RBI to cut rates at its next meeting to accommodate cash circulation in the economy but I have a different view on that and do not expect the central bank to cut rates."
"However, the markets are likely to remain volatile over the next two weeks and it won't be surprising to see the Nifty fall to 7,700 levels," he added.
The Nifty was down 1.40 percent at 7961.40 as of 0555 GMT in choppy trade with the Nifty volatility index rising 11 percent ahead of the derivatives expiry on Thursday. The Sensex was 1.26 percent lower at 25,819.67.
Financial and auto stocks led the decline, accounting for two-thirds of the NSE index's fall, with State Bank of India, ICICI Bank and Eicher Motors among the major laggards.
Among gainers, Bharti Infratel led the way, while IT stocks such as HCL Technologies and Infosys were also trading higher.
(Reporting by Arnab Paul in Bengaluru; Editing by Subhranshu Sahu)