An expected rate cut by the US Fed later this week and easing of local inflation numbers prepare the ground for a rate cut by December
Among sectoral indices, Nifty Metal was the biggest gainer (up 1.9%) followed by Nifty Realty and Pharma which gained 1.3% and 1%, respectively
India's benchmark Sensex fell 1.49% or 865 points to 57124 points while Nifty lost 1.53% or 265 points to 16834 points.
The home currency opened at 82.29 and touched a high of 82.23 a dollar -- a level last seen on 9 December. At 9.30am, the domestic currency was trading at 82.23 a dollar, up 0.3% from its previous close of 82.36.
Fed policymakers in recent months have become increasingly aggressive in their efforts to curb inflation, which this spring hit a four-decade high.
The Fed is under pressure to quickly take its policy rate to the neutral level that neither stimulates nor restricts - and beyond.
In the morning trade both Sensex and Nifty fell around 1% before rebounding. Now the indices have declined around 0.4%.
Fund flow trends into emerging markets will be contingent to the US Fed's rate trajectory, and geo-political concerns. The FOMC meet kicks off amid a heightened state of global risk-off sentiment and volatility