Crude oil rose another 1.5 per cent on fears of a US military attack on Iran that
would disrupt flows from the Middle East, which accounts for over 20 per cent of
the world's oil output.
Brent crude, the global oil benchmark, surged over 5 per cent on Thursday over renewed tensions in the Middle East after Iran shot down a US drone.
US President Donald Trump warned that Iran had made "a very big mistake".
The Sensex declined by 407.14 points or 1.03 per cent lower to settle at 39,194.49. The Nifty fell by 107.65 points or 0.91 per cent to 11,724.10.
"Concern over shortfall in tax collection and RBI's indication of losing traction on growth impacted the sentiment," said Vinod Nair, Head of Research, Geojit Financial Services.
"Market seems to factor in some rationalization in GST rates in the upcoming meeting and more fiscal measures in the budget due next month. Delayed monsoon and a surge in oil prices due to US-Iran tensions further led the consolidation," Nair added.
Tata Motors shares recovered from early declines to close slightly lower after global rating agency Moody's downgraded its credit rating and that of Jaguar Land Rover.
Shares of aviation companies Interglobe Aviation and SpiceJet fell after a sharp surge in crude oil prices.
FII outflows totaled $65 mn for the past five days and DII inflows at $181 mn for the same period.
Going ahead, the markets would continue to consolidate and may react to geopolitical tensions (in Iran), crude prices and monsoons, said Sanjeev Zarbade, VP PCG Research, Kotak Securities.
( With inputs from IANS )