The Sensex and the Nifty ended the session marginally down as markets took a breather after Friday's more than 2 per cent gains, ahead of the central bank's monetary policy.
The 30-share BSE index Sensex ended lower by 45.86 points or 0.18 per cent at 24,824.83 and the 50-share NSE index Nifty ended down by 7.6 points or 0.1 per cent at 7,555.95.
The Reserve Bank of India (RBI) is expected to keep its key interest rate steady on Tuesday and only make one cut this year as rising inflation ties its hands, according to a Reuters poll.
Among BSE sectoral indices, banking index fell the most by 1.4 per cent, followed by power 0.55 per cent, PSU 0.38 per cent and auto 0.36 per cent. On the other hand, FMCG index was up 0.98 per cent, followed by capital goods 0.98 per cent, metal 0.78 per cent and TECk 0.7 per cent.
Govt bans capital goods import under EPCG for power generation. BHEL and other power equip makers up
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Top five Sensex gainers were Adani Ports (+3.67%), Cipla (+2.67%), Bharti Airtel (+2.35%), Asian Paints (+2.12%) and Cipla (+2.07%), while the major losers were ICICI Bank (-5.63%), State Bank of India (-3.92%), Maruti (-3.68%), Axis Bank (-2.17%) and HUL (-1.96%).
The broader NSE index earlier rose as much as 0.49 per cent to start the new month on a positive note as Larsen & Toubro rallied after maintaining its sales guidance for the year, while sentiment was also supported by better-than-expected manufacturing data.
However, it is still down about 4.8 per cent this year.
The benchmark BSE index gained as much as 0.53 per cent.
Traders said investors also drew comfort from the Bank of Japan's unexpected stimulus measures, which had sent Asian shares, including in India, rallying.
But the broader gains were capped ahead of the Reserve Bank of India's policy review on Tuesday. Most analysts expect the central bank to hold leave its key interest rate remain on hold.
"Stocks are rallying today on account of BoJ's stimulus which set off a global risk-on. L&T earnings, YES Bank numbers, along with beaten down valuations have led to a sharp relief rally in many names, said Varun Khandelwal, director at Bullero Capital.
L&T gained as much as 5.2 per cent after maintaining its guidance for 10-15 per cent sales growth for the year ending March 31. The stock ended higher by 1.81 per cent at Rs 1,122.15 on the BSE.
Meanwhile, blue-chips benefited after a private survey showed India's manufacturing activity unexpectedly returned to growth last month.
YES Bank ended higher by 3.4 per cent, after it rose more than 11 per cent on Friday on better-than-expected December-quarter earnings.
But among the stocks that fell, Maruti Suzuki slipped 3.68 per cent as it reported a fall in January sales, while India's top two lenders State Bank of India and ICICI Bank plunged ahead of the RBI review.
A report by SMC Global said: "Asian stocks climbed and Japanese bond yields tumbled as the impact of the Bank of Japan's surprise stimulus move continued to be felt across financial markets. US stocks closed more than 2 per cent on Friday, the last trading day of January, after the Bank of Japan unexpectedly adopted a negative interest rate policy for the first time. US economic growth saw a notable slowdown in the last three months of 2015, according to a report released by the Commerce Department. The report said real gross domestic product increased by 0.7 per cent in the fourth quarter compared to the 2.0 per cent growth reported for the third quarter. Economists had expected GDP to rise by about 0.8 per cent."
Foreign portfolio investors (FPIs) bought shares worth Rs 571.70 crores last Friday, as per provisional data released by the stock exchanges.
European stock markets were steady on Monday, as a rise in the shares of major banks such as Bankia offset a fall in the telecoms sector after Nokia settled a dispute with Samsung.
The pan-European FTSEurofirst 300 index, whose 6 per cent fall in January was its worst monthly drop at the start of a year since 2008, rose 0.1 per cent.
Asian stocks started a new month on a cautious note on Monday, with the Bank of Japan's surprise policy easing sparking some buying, although Chinese shares fell.
Chinese shares stumbled lower on Monday after an official measure of activity in the giant factory sector fell to its lowest since mid-2012, offering no respite from the economic drift that has dogged markets for months.