Blue-chips lost their vigour too as lack of progress in GST Bill in the just-concluded Monsoon session of Parliament and absence of any positive earnings surprise added to the cloudy sentiment.

"Indian benchmarks after a positive opening witnessed a sudden sell-off during the day. Continued depreciation of the rupee, another devaluation of the Chinese currency and subdued corporate earnings for the quarter ended June 2015 weighed on sentiment," said Gaurav Jain, Director, Hem Securities.

India's exports narrowed for the eighth straight month by 10.3 percent in July to USD 23.13 billion, widening the trade deficit to USD 12.81 billion. In the forex market, the rupee sprang a surprise as it depreciated 37 paise to settle at a nearly two-year low of 65.37 (intra-day) against the dollar. Banking shares were in the spotlight as the government on Friday announced a seven-pronged revamp strategy to get public lenders back in shape.

Sensex had gained 550.05 points in the past two sessions. The gauge went down to touch a low of 27,739.13, but recovered partially to end at 27,878.27, still down 189.04 points, or 0.67 per cent, from its previous close.

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