The BSE Sensex skidded 1 percent on Thursday as a government share sale in Oil and Natural Gas Corp (ONGC.NS) to raise at least $2.5 billion drew investors away from the secondary market.
Banks extended losses for a second day after economic growth slowed to its weakest pace in almost three years in the December quarter as high interest rates and rising input costs hurt investment and manufacturing.
State Bank of India, the country's largest lender, fell 2 percent, while rivals ICICI Bank (ICBK.NS) shed 2.5 percent and HDFC Bank (HDBK.NS) dropped 1 percent.
The main 30-share BSE index was down 0.95 percent at 17,584.90 by 11:03 a.m. (0533 GMT), with 23 of its components in the red.
It fell as much as 1.3 percent at one stage, and pulled back after a business survey showed new orders for factories touched a 10-month high in February, although the manufacturing sector expansion slowed slightly.
Leading car maker Maruti Suzuki (MRTI.NS) bucked the trend and rallied 2.8 percent after its February sales rose 6.5 percent.
Truck and car maker Tata Motors (TAMO.NS) was down 0.2 percent and utility vehicle leader Mahindra and Mahindra (MAHM.NS) shed 1.6 percent ahead of their February sales numbers.
ONGC rose as much as 1 percent after the government commenced a one-day auction to sell a 5 percent stake in the country's largest oil producer at a floor price of 290 rupees a share.
The stock later came off and was little unchanged at 292.5 rupees.
ONGC will suck money from the market, said Hitash Dang, vice president at Jaypee Capital.
Foreign funds, which have bought Indian shares worth $7 billion since the end of December, are expected to bid heavily for ONGC shares, traders said.
Top engineering conglomerate Larsen and Toubro (LART.NS) fell 1.8 percent, extended losses to a second day after it missed out on a 160-billion-rupee bulk tender by utility NTPC (NTPC.NS).
State-run Bharat Heavy Electricals (BHEL.NS), which too missed out on the order, fell 3.3 percent.
Sun Pharmaceutical Industries (SUN.NS) rose 2 percent after it received U.S. Food and Drug Administration's approval to sell the generic version of Zypreza tablets in the United States. The drug is used to treat schizophrenia.
The 50-share NSE index was down 0.92 percent at 5,335.3. In the broader market, there were about 2.4 losers for every gainer on volume of 163.98 million shares.
The MSCI's measure of Asian markets other than Japan was down 0.7 percent while Japan's Nikkei fell 0.4 percent.
STOCKS ON THE MOVE
* Tata Communications (TATA.NS) rose 3.6 percent after the Times of India reported the company was preparing to bid for Britain's Cable & Wireless Worldwide Plc (CWP.L), possibly in the next two weeks. Officials at Tata Communications could not be immediately reached for comment by Reuters.
* Videocon Industries (VEDI.NS) fell 0.54 percent after its December quarter net profit fell 47 percent.
* Glenmark Pharmaceuticals (GLEN.NS) rose 1.2 percent after the drugmaker received U.S. drug regulator's approval to sell an oral contraceptive tablet and a skin treatment gel in the United States.
TOP THREE BY VOLUME
* IFCI (IFCI.NS) on 15.27 million shares
* Lanco Infratech (LAIN.NS) on 14.42 million shares
* HDIL (HDIL.NS) on 7.5 million shares.