At 12:06 pm, the Sensex traded 165.95 points - or 0.45 per cent - lower at 36,902.98, while the Nifty was down 52.90 points - or 0.48 per cent - at 10,895.40.

Top percentage laggards on the 50-scrip index at the time were NTPC, Coal India, Power Grid, Larsen & Toubro, Axis Bank, Indiabulls Housing Finance and ONGC, trading between 2.23 per cent and 4.59 per cent lower.

Reliance Industries, Larsen & Toubro, Axis Bank and Kotak Bank were the top drags on the Sensex.

Market breadth was negative, with 1,001 stocks trading higher and 1,109 moving lower on the Bombay Stock Exchange (BSE). On the National Stock Exchange (NSE), 766 stocks advanced while 859 declined.

The Nifty Energy index - comprising petroleum, gas and power stocks - fell as much as 2.63 per cent, dragged lower by sharp losses in NTPC, Hindustan Petroleum and Power Grid.

Banking stocks weakened, with the Nifty Bank sectoral index declining as much as 0.67 per cent, a day after the Reserve Bank of India (RBI) in its annual report said frauds in the banking system increased 74 per cent to Rs. 71,543 crore in financial year 2018-19. The S&P BSE Bankex index fell 0.75 per cent at one point during the session.

The government last week said it would immediately inject Rs. 70,000 crore to recapitalize state-run banks and encourage them to lend. That was part of a slew of measures - including a withdrawal of higher taxes on foreign portfolio investors as announced in Budget - to revive the economy, which clocked its lowest rate of growth in nearly five years in the March quarter.

The moves were initially cheered by the market, but those gains faded by Thursday as concerns on the slowing local economy and trade talks between the US and China dominated investor sentiment.

The government will release GDP or gross domestic product data for the quarter ended June 30 after market hours. According to a poll by news agency Reuters, the economy was expected to have grown 5.7 per cent in the June quarter - its slowest pace in more than five years.