Indian equities experienced a downturn on Monday, driven by declines in banking and Tata Group shares, as investors opted to cash in on gains ahead of crucial domestic and U.S. inflation figures. The NSE Nifty 50 dropped by 0.72% to 22,332.65, while the BSE Sensex settled 0.83% lower at 73,502.64.

Market sentiment was influenced by profit-taking activities, with investors closing positions ahead of the end of March. Aishvarya Dadheech, founder and chief investment officer at Fident Asset Management, highlighted the likelihood of selling pressure at record high levels in the coming weeks.

Moreover, regulatory directives on small- and mid-cap funds, coupled with their underperformance, contributed to market jitters. The small-caps and mid-caps indices lost 2% and 0.4%, respectively, underperforming the broader benchmarks.

Concerns over stretched valuations and elevated inflows into small- and mid-caps prompted caution, as highlighted by the Securities and Exchange Board of India (SEBI). Financial stocks, including HDFC Bank and State Bank of India, faced downward pressure, while Tata Group stocks declined amid uncertainties surrounding Tata Sons' listing prospects. Market participants await the release of India's consumer price inflation data after market hours on Tuesday, amid muted trading sentiment across Asian markets ahead of U.S. inflation figures.