Sentiment globally was weaker after data showed US inflation rose sharply in April, deepening fears of aggressive policy tightening by the Federal Reserve and a global economic slowdown. MKTS/GLOB

The Indian rupee INR=IN plunged to a record low for a second time this week, hitting 77.63 against the dollar. It settled at 77.5025.

Indian stock markets have in recent weeks been roiled by fears of sky-high inflation, a surprise interest rate hike, foreign fund outflows and mixed set of corporate results.

Foreign investors have sold Indian equities worth $2.27 billion so far this month, compared with net buying of $967 million in the same period last month, Refinitiv data showed.

"For Indian markets, inflation and Reserve Bank of India's unexpected rate increase has created some kind of nervousness," said Kranthi Bathini, director of equities strategy at WealthMills Securities.

Reliance Industries RELI.NS, HDFC HDFC.NS, Bajaj Finance BJFN.NS and Bajaj Finserv BJFS.NS were among the top drags on the Nifty 50, falling between 2 per cent and 3 per cent. Adani Ports APSE.NS was the top percentage loser on the Nifty 50 index, falling 6 per cent.

Jaguar Land Rover parent Tata Motors TAMO.NS closed down 4.1 per cent down, ahead of its quarterly results.

India's economic growth rate is likely to slow if the central bank hikes interest rates, finance secretary TV Somanathan told CNBC TV18 on Thursday.