The BSE Sensex is down over 1 percent, led by declines in financial shares after a record low of the rupee was seen raising concerns about foreign investor selling and more measures by the RBI to stem the slide in the currency.
The Nifty loses 1.12 percent, heading for a third consecutive day of declines.
The rupee extended losses past 64 to a dollar on continued concerns about how the country will fund its current account deficit in case fund flows taper out of emerging markets.
J.P.Morgan also downgrades Indian shares to "neutral" from overweight", citing strain in balance of payments.
Among financial shares, Housing Development and Finance Corporation (HDFC.NS) fell 2 percent while ICICI Bank (ICBK.NS) is down 1.2 percent.
Shares perceived defensive also fell on concerns about their valuations relative to the market, dealers say.
ITC (ITC.NS) is down 2.4 percent, while Sun Pharmaceutical Industries (SUN.NS) fell 4.6 percent.