The blue-chip NSE Nifty 50 index and the benchmark S&P BSE Sensex each fell 1.5% to 14,324.90 and 48,440.12, respectively. The indexes had dropped nearly 2% in the previous session.
India's daily COVID-19 cases hit a five-month high on Thursday and the country put a temporary hold on all major exports of the AstraZeneca coronavirus shot made by the Serum Institute of India to meet domestic demand.
"Although the Indian gross domestic product has reverted to pre-covid levels in the third and fourth quarter, uncertainty related to the near-term outlook has risen considerably in the recent weeks, following the spate of new Covid-19 infections," Aditi Nayar, principal economist, ICRA said in a note.
"The uncertainty will persist over the next few months, until the vaccines become available in India for all adults."
India's central bank governor, Shaktikanta Das, called the increase in COVID-19 cases a "matter of concern", but said the country was better prepared to tackle the situation.
The Nifty energy index fell 2.9%, dragged down by a 2.7% fall in heavyweight Reliance Industries.
The Nifty information technology index fell 2.2%, led by a more than 1% drop in Infosys and Tata Consultancy Services.
Only six Nifty 50 stocks traded in the positive territory.
Shares of speciality chemicals maker Laxmi Organic Industries surged nearly 19% in their market debut in Mumbai, while those of engineering company Craftsman Automation dropped 8.8%.
(Reporting by Nallur Sethuraman in Bengaluru; Editing by Vinay Dwivedi)