Official data released on Friday showed that India's GDP or gross domestic product expanded 5 per cent in the quarter ended June 30, marking the slowest pace since March 2013. The GDP data highlighted concerns about a downturn in the economy amid production cuts and lakhs of estimated job cuts in the auto sector.

Trade frictions escalated between US and China after the United States imposed 15 per cent tariffs on a variety of Chinese goods on Sunday - including footwear, smart watches and flat-panel televisions - as China put new duties on US crude.

Analysts say the latest escalation between the world's largest and second largest economies is raising concerns about a further hit to global growth.

Back home, state-run lenders were among the worst hit in trade today after the government on Friday announced mega mergers of the government-owned banks. The gauge PSU banks on the NSE fell 3.5 per cent with Punjab National Bank falling 8 per cent. Finance Minister said Punjab National Bank, Oriental Bank of Commerce and United Bank will merge to form the country's second largest public sector bank with a business of Rs. 17.95 lakh crore, "1.5 times the size of Punjab National Bank".

The Canara Bank will join Syndicate Bank; Union Bank of India, Andhra Bank and Corporation Bank will merge, and Indian bank will merge with Allahabad Bank. Together, they will hold business worth Rs. 55.8 lakh crore, Ms Sitharaman added.

"There is a knee-jerk reaction in banks. Any mergers will take time... previous mergers have taken years for their benefits to come. These are long-term positives and short-term negatives," AK Prabhakar, head of research at IDBI Capital, told NDTV.

Mid- and small-cap shares were also witnessing selling pressure as both the indexes fell over a per cent each.

UltraTech Cement was top loser in the Nifty 50 basket of shares. The stock fell 3.7 per cent to Rs 3,902. Indian Oil, Tata Motors, ICICI Bank, HDFC, Tata Steel, Titan, Bharat Petroleum, Eicher Motors, ONGC and Mahindra & Mahindra were also among the laggards.

On the flipside, Tech Mahindra, Britannia Industries, HCL Technologies, TCS and Infosys were among the notable gainers.