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Indian shares declined on Wednesday, dragged by energy companies and public sector banks and as investors booked profits ahead of key U.S. and domestic economic data.

The blue-chip index NSE Nifty 50 was down 0.72% at 22,039, while the BSE Sensex shed 0.67% to 72,605.25, as of 11:54 a.m. IST.

The indexes swung between slight gains and losses in the first hour of trade before slipping. They had gained nearly 2% in the past two weeks but are down nearly 1% so far this week.

"Volatility will remain elevated and occasional profit booking, like today, will continue as valuation concerns linger after the recent rally," said Samrat Dasgupta, CEO of Esquire Investment Advisors.

The Nifty volatility index rose to 16.42 on the day, slightly below the 10-month high of 16.58 hit on Jan. 30.

Energy and oil and gas stocks dropped about 1.7%, dragged by a similar decline in Reliance Industries.

Later in the day, the oil-to-retail conglomerate is expected to announce the merger of its media assets with Disney's India media assets, Reuters reported citing sources.

Oil marketing companies Bharat Petroleum, Hindustan Petroleum and Indian Oil lost 2%-4%.

OMCs' earnings should moderate as gross refining margins normalise and yet the stocks have rallied an "irrational" 77% over the last six months, said Nuvama Institutional Equities, downgrading the three stocks to "reduce" from "hold".

State-owned banks shed 2%.

The broader, more domestically-focussed small- and mid-caps lost over 1.6% each.

"Small- and mid-caps represent a risk area for the markets. Multiple asset managers are stopping taking in funds in the segments, while the market regulator has sought more disclosures from funds," Dasgupta said.

Broader Asian markets fell, ahead of the release of a key U.S. inflation reading on Thursday. Meanwhile, on the same day, data is expected to show India's growth likely moderated to 6.6% year-on-year in the October-December quarter. [MKTS/GLOB]