The 30-share Sensex ended down 73 points at 19,244 and the 50-share Nifty ended 22 points lower at 5,858.
Goldman Sachs expects the Reserve Bank of India (RBI) to cut its key interest rate by 25 basis points at its policy review on Tuesday after last week's inflation data came well below expectations, and as economic growth remains sluggish.
"There has been a persistent higher LAF (liquidity adjustment facility) number as well, which indicates a structural liquidity deficit in the system, and has rightly resulted in the resumption of open market operations by RBI.
"Improvement in liquidity is key for monetary policy easing as rate cuts alone will not be able to transmit into lending rate cuts.
"Given the above backdrop we expect RBI to cut CRR by 25 basis points on December 18 to ensure adequate liquidity and wait for inflation data while having a cautious watch on government's ability to take prudent quantitative and concrete steps leading towards fiscal discipline, before actioning a rate cut.", said Arun Khurana, head-global markets group, IndusInd Bank.
Asian shares ended lower on Monday with the exception of Japan and China.
The Nikkei rose 0.9% to 9,828.88, the highest closing level since April 3, while the yen hit a 20-month low of 84.48 yen to the dollar, boosting the appeal of exporters' shares.
Shanghai Composite gained 0.5% while the Hang Seng and Straits Times ended down 0.3-0.4% each.
On the sectoral front, BSE Auto, Metal, Healthcare and Power indices ended up 0.1-1.8%
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