Indian shares followed Asian peers lower on Monday, dragged down by metals stocks, as fears about the economic impact of China's spreading virus outbreak curbed risk appetite.

China coronavirus outbreak
Analysts also expect Indian markets to remain volatile until the announcement of the federal budget on Saturday.Reuters

Japan's Nikkei average and US S&P 500 mini futures each fell sharply, and oil prices slumped 2% to multi-month lows, amid news that the ability of the coronavirus to spread is getting stronger, with the death toll from the virus rising to 80.

India's NSE Nifty 50 index was down 0.44% at 12,194.00 by 0420 GMT, while the S&P BSE Sensex was 0.43 lower at 41,32.75.

It is a global scare. It has a global economic impact and impacts commodity prices," said Deepak Jasani, head of retail research at HDFC Securities Ltd in Mumbai.

"Foreign investors may want to reduce positions across markets."

Indian markets to remain volatile

Analysts also expect Indian markets to remain volatile until the announcement of the federal budget on Saturday, which may include government measures to revive economic growth that has slipped to a more than six-year low.

On the Nifty, the top three decliners were all metals and mining stocks. JSW Steel, with a 4.5% fall, was the biggest loser, followed by Tata Steel, Vedanta Ltd and Hindalco.

Investors may be reacting to fears about disruptions to the steel supply chain in the wake of the coronavirus outbreak in China, the world's top producer and consumer of steel, HDFC's Jasani said.

However, UltraTech Cement rose 2.1% and led gainers on the Nifty following results on Friday.

Private-sector lender ICICI Bank firmed 1% after reporting a higher profit for the quarter ended December.

Meanwhile, India on Monday announced plans to sell its entire stake in Air India, in a revised push to sell its national carrier after an initial attempt to sell a majority stake in the airline failed to draw a single bid in 2018.

A government document set March 17 as the deadline for submissions of initial expressions of interest in Air India and said any bidder would have to agree to assume roughly $3.26 billion in debt, along with other liabilities.