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 slumped nearly 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".

"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.

All the 11 sector gauges compiled by National Stock Exchange ended lower led by the Nifty PSU Bank index's over 5 per cent drop. Nifty Bank, Private Bank, Metal, Financial Services and Media sector gauges also dropped between 2.5-3 per cent each.

Mid- and small-cap shares also witnessed selling pressure as the Nifty Midcap 100 and Nifty Smallcap 100 indexes fell 2 per cent each.

Tata Steel was top loser in the Nifty 50 basket of shares, the stock fell 4.5 per cent. UltraTech Cement, ICICI Bank, Titan, Indian Oil, Tata Motors, Reliance Industries IndusInd Bank and JSW Steel were also among the losers.

On the flipside, Tech Mahindra and HCL Technologies were among the only gainers in the Nifty.