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Indian shares fell on Monday, weighed down by a decline in banking and Tata Group stocks, while investors booked profits ahead of key domestic and U.S. inflation data.

The blue-chip NSE Nifty 50 shed 0.72% to 22,332.65, while the BSE Sensex settled 0.83% lower at 73,502.64.

"A lot of investors will close their books in March and take some profit. This will likely lead to selling at record high levels in the next three weeks," said Aishvarya Dadheech, founder and chief investment officer at Fident Asset Management.

Adding to that, regulatory instructions on small- and mid-cap funds and underperformance in the broader small- and mid-caps could continue, Dadheech added.

The broader, more domestically-focussed small-caps lost 2%, underperforming the benchmarks, while mid-caps dropped 0.4%.

There may be pockets of irrational exuberance in Indian equity markets, the Securities and Exchange Board of India (SEBI) said on Monday, referring to concerns over stretched valuations and elevated fund inflows into small- and mid-caps.

The segments have underperformed the Nifty 50 since the markets regulator on Feb. 27 asked mutual funds to disclose more about risks.

On the day, financials, banks, private banks and state-owned banks lost between 0.65% and 2%.

HDFC Bank fell 1.27% after CLSA flagged challenges for deposit growth and net interest margin recovery for the private lender.

State Bank of India dropped 1.82% after India's top court rejected a plea by the state-owned lender, seeking more time to share political donors' names.

Tata Group stocks Tata Consumer, Tata Steel and Tata Motors shed between 1% and 3.1%, on reports that Tata Sons' listing appeared improbable in the near term.

Meanwhile, India's consumer price inflation is forecast to have edged down to a four-month low in February, according to a Reuters poll of economists. The data is due after market hours on Tuesday.

Asian markets were muted ahead of U.S. inflation data, also due on Tuesday. [MKTS/GLOB]