Domestic stock markets extended losses in the second half of the session, dragged lower by a selloff in banking, financial services and media stocks. The Sensex declined as much as 425 points from the intraday high of 39,041.25 as the selloff in banking stocks deepened. The Nifty moved in a range of 11,710.30-11,583.40, declining 126.9 points from the day's strongest level. In afternoon trade, all sectors traded with losses, leading to a reversal in gains registered by the benchmark indexes earlier in the day.
At 2:01 pm, the Sensex traded at 38,628.05, down 234.18 points, or 0.60 per cent, from the previous close, while the Nifty was down 77.70 points at 11,588.25.
Top laggards on the 50-scrip index at the time were Indiabulls Housing Finance, Indian Oil, Vedanta, Bajaj Finance and GAIL, trading between 2.19 per cent and 3.21 per cent lower.
The markets receded from the day's highest levels as volatility set in. The NSE's India VIX index - which gauges the market expectation of volatility in the near term - surged as much as 11.16 per cent.
Market breadth favoured declines, with 1,064 stocks on the NSE trading with losses and 677 trading higher.
Meanwhile, the rupee slipped by as much as 37 paise to hit 69.60 against the dollar during the session.
Shares in Lakshmi Vilas Bank soared as much as 5 per cent and were set to settle higher for a third consecutive session. The stock jumped after its board of directors approved a merger deal with housing finance company Indiabulls Housing Finance. Indiabulls Housing Finance shares pared gains and were trading 3.7 per cent lower at Rs 869.55 after rising 1.5 per cent earlier in the day.