Indian shares rose in early trade on Monday on upbeat global cues, before reversing course on concerns ahead of the central bank's three-day interest rate-setting meeting.
The Reserve Bank of India (RBI) is expected to hold rates, according to the median forecast in a Reuters poll, while about 40 percent of the economists polled expects a hike.
"Markets opened positive due to global cues and favourable data points," said AK Prabhakar, head of research at IDBI Capital.
The broader NSE Nifty was down 0.05 percent at 10,691.35 as of 0644 GMT, while the benchmark BSE Sensex was 0.05 percent higher at 35,245.13.
The BSE index had earlier risen as much as 0.9 percent and the NSE index had climbed 0.7 percent, tracking Asian shares. MSCI's broadest index of Asia-Pacific shares outside Japan gained as much as 1.1 percent to its highest since May 17 on strong U.S. jobs data.
Indian markets were nervous due to unfavourable market breadth and the fact that mid-cap and small-cap stocks have been underperforming over a period of time, said Prabhakar.
"In addition, more than 30 stocks have been brought under the additional surveillance measure (ASM) framework. Stocks that have done well in the last few years have cracked very badly," he said.
BSE placed stocks such as Rain Industries Ltd and Radico Khaitan Ltd under the ASM framework effective from June 1. https://reut.rs/2J9MtoS
Both Rain Industries and Radico Khaitan fell as much as 5 percent, their lower circuit, and were headed for a third straight session of fall.
GAIL (India) and Indiabulls Housing Finance Ltd were among top losers on the NSE index, shedding more than 2 percent each.
Bank of Baroda Ltd slid 4 percent after reports the government was considering the merger of at least four state-run banks. The four banks are Bank of Baroda, IDBI Bank Ltd, Oriental Bank of Commerce Ltd and Central Bank of India Ltd.
Deep Industries Ltd slumped nearly 20 percent after the company said the federal police registered a case against 13 officials of Oil and Natural Gas Corp and Deep after ONGC's vigilance department filed a complaint regarding a contract with Deep.
Meanwhile, Dr. Reddy's Laboratories Ltd gained as much as 4.5 percent after the company received no observations from the U.S. Food and Drug Administration audit of its active pharmaceutical ingredient plant in Andhra Pradesh.