Oil prices rose 3.5 percent on Monday, the highest since early July 2015, as Saudi Arabia's crown prince cemented his power with an anti-corruption crackdown, while the U.S. rig count fell and markets continued to tighten.
The rise in oil prices is seen as likely to prevent the Reserve Bank of India from cutting interest rates anytime soon, even as economic growth has slowed to a three-year low - removing a potential trigger for markets.
Dilip Bhat, Joint Managing Director at Prabhudas Lilladher Pvt Ltd, said the broader NSE Nifty would likely struggle to gain much without more positive news on corporate earnings or the economy.
"From here on, if it (NSE index) has to move beyond 10,500 level and show sustainable rally, it will require solid support from corporate earnings as well as economic recovery in third and fourth quarters," Bhat said.
The broader Nifty was down 0.85 per cent at 10,363 as of 2.07 pm, while the benchmark BSE Sensex fell 333 points to trade 1 per cent lower at 33,414 points after hitting a record high earlier in the session.
The benchmark 10-year bond yield rose as much as 5 basis points to 6.94 percent, its highest since May 11. Meanwhile, the rupee weakened to as much as 64.8775 per dollar from its close of 64.6850.
Energy shares slipped, with the Nifty Energy index losing 1.7 percent. Oil refiners Reliance Industries and Indian Oil Corp were 2.3 and 3.4 percent lower.
Aviation stocks also took a hit on higher crude prices, with InterGlobe Aviation Ltd falling 2 percent and Jet Airways (India) Ltd losing 3.9 percent.
IT stocks, however, climbed with the Nifty IT index rising as much as 2.9 percent to its highest since August 2016. Tata Consultancy Services Ltd gained 2.7 percent, while Infosys Ltd rose 2.8 percent.
Debt-laden telecom operator Reliance Communications Ltd climbed as much as 3.2 percent after signing a deal to sell its Direct-to-Home business, Reliance Big TV Ltd, to Veecon Media and Television in a bid to reduce its debt.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)