At 12:19 pm, the Sensex traded 291 points - or 0.77 per cent - lower at 37,591.84 while the Nifty was down 112 points - or 0.99 per cent - at 11,172.75.

In a media interview, the Finance Minister sought the central bank to cut interest rates "significantly". She also said the increase in surcharge on foreign portfolio investments (FPI) was not intended to hurt investors.

Analysts said the markets are expected to continue on a weak note in the near term.

“I don't think the markets are reacting to the Finance Minister's comments on the government's overseas borrowing plan… It may be 6-7 months (next Budget) before the government makes any changes on the rules on foreign portfolio investors,” AK Prabhakar, head of research at IDBI Capital, told NDTV. “The markets have fallen in past few sessions and I think it will continue.”

Market breadth favoured losses with 700 stocks trading higher on the BSE against 1,315 struggling with losses. On the NSE, 509 shares advanced while 1,192 declined.

Top percentage laggards on the 50-scrip index at the time were Indiabulls Housing Finance, Grasim, Tata Motors, Bajaj Auto, Vedanta, Bharti Infratel and JSW Steel, trading between 4.29 per cent and 8.01 per cent lower. HDFC Bank, HDFC and Larsen & Toubro were the top drags on Sensex.

On the other hand, ICICI Bank shares rose as much as 4.57 per cent, after the private sector banking major reported a net profit of Rs 1,908.03 crore for the quarter ended June 30. ICICI Bank had reported a net loss of Rs 119.55 crore for the corresponding period a year ago.

Analysts also said weak corporate earnings hurt investors' sentiment. "Sentiment is quite weak. Only a few companies are coming up with good numbers this earnings season," news agency Reuters quoted Rusmik Oza, a vice president at Kotak Securities, as saying in a report. "That is not giving very strong confidence to the market."

The Sensex and Nifty had declined 1.18 per cent each in the past week, with the benchmark indexes breaking a six-day losing streak - the longest stretch of losses in more than two months - on Friday.