As of 1:00 pm, the Sensex fell 445 points or 1.2 per cent to 36,672 and the NSE Nifty 50 Index dropped 132 points or 1.2 per cent to 10,865."Move to remove Article 370 which gave special status to Jammu and Kashmir is a good move and shows the strength of the government. Overall today's decision indicates that the reforms in the economy will happen at a much faster space and also indicates that the government is ready to take bold steps," Ajay Bagga, executive chairman at OPC Asset Solutions told NDTV over phone.

Markets have been badly spooked since US President Donald Trump abruptly declared he would slap 10 per cent tariffs on $300 billion in Chinese imports, ending a month-long trade truce. China vowed on Friday to fight back.

In response, China's yuan burst beyond the psychological 7-per-dollar threshold in a move that threatened to unleash a new front in the trade hostilities - a currency war, news agency Reuters reported.

Back home, foreign institutional investors continue to sell shares in the Indian equity markets. In Friday's session, the foreign portfolio investors sold shares worth Rs 2,888.06 crore while domestic institutional investors bought shares worth Rs 2,812.66 crore.

The foreign portfolio investors have been selling shares in Indian markets since Budget after the government imposed higher taxes on those earning more than Rs 2 crore and Rs 5 crore including foreign investors who invest in capacity of trusts or association of persons. The FPIs sold shares worth Rs 12,418.73 crore in July.

Seventeen of 19 sector gauges compiled by BSE were trading lower led by the S&P BSE Metal Index's nearly 3.6 per cent fall. Energy, Industrials, Utilities, Auto, Bankex, Capital Goods, Consumer Durables, Oil & Gas, Power and Realty sector gauges also fell between 2 and 2.8 per cent each.

On the other hand, S&P BSE Information Technology index rose 0.7 per cent tracking weak rupee against the dollar.

Mid- and small-cap shares were also witnessing selling pressure as the S&P BSE MidCap and S&P BSE SmallCap Indexes fell over 2 per cent each.

In the Nifty 50 basket of shares, 47 were declining led by Yes Bank's 9 per cent plunge. Tata Motors, Vedanta, JSW Steel, State Bank of India, Tata Steel, Power Grid, Hindalco, Indiabulls Housing Finance, ICICI Bank, Bharat Petroleum, ONGC and Reliance Industries were also among the losers, down between 3-5.4 per cent each.