Indian shares fell 1 percent on Friday, while the rupee hit its weakest point since early April amid concerns that the government's plan for a stimulus to halt an economic slowdown may have a negative impact on the fiscal deficit.
India is considering a plan to loosen the fiscal deficit target so that it could spend an additional 500 billion rupees ($7.71 billion) in the financial year ending March 2018, two government sources said on Thursday.
Finance Minister Arun Jaitley had said earlier that the government was looking for ways to lift economic growth, which slipped to a three-year low of 5.7 percent in the quarter to end-June.
Global investor sentiment was subdued after North Korea said it might test a hydrogen bomb in the Pacific Ocean and escalated a war of words with U.S. President Donald Trump.
"This remains a potential threat to the overall markets," said Teena Virmani, vice president, Kotak Securities.
The broader NSE Nifty was down 1.17 percent at 10,003.10 as of 0708 GMT, while the benchmark BSE Sensex was 0.95 percent lower at 32,061.94.
Both indexes extended falls into a fourth session and were on track to post weekly losses for a second time this month.
"Valuations are still a concern. There will be some kind of profit-booking at these levels wherein a large amount of froth had been built up in the last 1-1/2 months," said Virmani.
Banks were the top losers, with the NSE Bank index shedding as much as 1.6 percent in what could be its fourth straight session of decline.
ICICI Bank Ltd fell as much as 2.6 percent, extending declines into a third session, while Yes Bank Ltd dropped as much as 4.7 percent after four consecutive sessions of gains.
The Nifty PSU Bank index declined as much as 2 percent to its lowest in nearly eight months, with State Bank of India sliding as much as 1.8 percent.
Reliance Home Finance Ltd, which was demerged from Reliance Capital Ltd earlier this month, opened at 102.10 rupees on its trading debut, rising as much as 5 percent.
The rupee breached the 65 per dollar level, hitting its weakest point since April at 65.15 per dollar.