The Sensex was trading lower by 107 points, while the Nifty shed 37 points in early trade. Among the early losers in trade were GAIL, Hindalco Industries, Cairn India, Jaiprakash Associates, Tata Motors, State Bank of India, DLF and IDFC.
Banking stocks which were in the limelight over the last few trading sessions also shed ground with Axis, HDFC Bank and ICICI amongst the losers.
Cement and infrastructure names also shed some ground with Jaiprakash Associates, Ultratech Cement and Ambuja Cement amongst the early Nifty losers.
Among the gainers were pharma stocks including Cipla and Sun Pharma. The only other gainers in trade were Infosys and Bajaj Auto.
NMDC continued to fall after the CAG blamed the country's largest iron ore miner for losing over Rs 1,500 crore of revenue through undue price discounts.
Mahindra Lifespaces dropped more than 1%, after Amansa Investments offloaded its entire 5.96 per cent stake in the company.
Kingfisher Airlines rallied in a falling market after reports that Etihad executives met Kingfisher Airlines officials.
Meanwhile, markets in Asia were trading lower on fresh worries over the fiscal cliff in the US. Most of the markets including the Chinese Shanghai Composite, Hong Kong's Hang Sang and the Japanese Nikkei were trading lower.
Markets are expected to be volatile going into the news year, if the fiscal worries in the US are not resolved.