The Sensex was trading lower by 115 points, while the Nifty shed 36 points. Worries erupted after the Dow Jones crashed 2.36% on Wednesday on worries whether US law makers would be able to agree on Bush era tax cuts which would automatically expire on December 31.
European shares too followed US stocks and closed sharply lower, while Asia opened in the red on Thursday with the Japanese Nikkei, Hong Kong's Hang Sang, Taiwan's Taipei and the Korean Kospi deeply in the red.
Among the major losers in trade were Tata Power, ICICI Bank, IDFC and Bank of Baroda, while gainers from the Nifty stocks included Tata Motors, Sun Pharma, Ranbaxy Laboratories and BPCL.
Shares of NMDC dropped after the workers of the company threatened to strike against the govt's move to disinvest another 10 percent stake. Shares of Ind Swift declined after the company posted a net loss for Q2.
Banking shares which had rallied sharply in trade dropped after selling pressure in ICICI Bank, PNB and State Bank of India dropped.
Markets are expected to remain choppy and eye global events particularly in the US, where lawmakers need to agree on how to resolve the fiscal cliff in the US.