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Indian shares reversed gains on Monday on volatility due to extended foreign investor selling and higher oil prices, which offset better-than-expected earnings from the country's largest private lender HDFC Bank.

The Nifty 50 index was down 0.44% at 17,876.50 as of 2:11 p.m. IST, while the S&P BSE Sensex fell 0.37% to 60,038.37. Both benchmarks had risen over 0.5% during the session.

Barring information technology and public sector banks, all the other 11 major sectoral indexes declined, with heavyweight financials falling 0.8% and metals losing 1.4%.

The reversal in equities during the session almost mirrored the downturn in financials, which gave away intraday gains of 0.8% in a volatile session.

"The volatility in markets will continue in the near term, due to extended selling by foreign portfolio investors (FPI)," said Siddhartha Khemka, head of research (retail) at Motilal Oswal Financial Services.

Foreign selling in Indian equities is the result of high domestic valuations and rising allocations to other markets such as China and Taiwan, which were cut earlier due to COVID curbs, three analysts said.

They also flagged a moderation in domestic investors' buying as another reason for volatility.

Data showed FPIs have sold 150.68 billion rupees ($1.85 billion) worth of equities in 2023 so far.

FIIs have been net sellers in each of the last sixteen sessions, the longest in six months, according to NSE provisional data. Since Dec. 23, 2022, they have offloaded nearly 239 billion rupees.

This was when markets fell on fears of a surge in COVID cases in China and inflation worries after the release of the Indian central bank's December policy meeting minutes.

Meanwhile, oil prices held near-2023 highs on optimism that China's reopening will lift demand. High crude prices hurt big importers like India, negatively impacting inflation and government financials. [O/R]