Markets began the day sharply lower before rebounding on a report from Bloomberg News that quoted a government official as saying that New Delhi could announce a rollback of taxes for foreign portfolio investors.
But they fell back into negative territory soon after, with the benchmark BSE index shedding 0.12% to 36,428.69. The broader NSE index was up 0.07% at 10,748.35 as of 0626 GMT.
Other Asian markets also remained subdued, with uncertainty over how much further the U.S. Federal Reserve would cut rates added to caution caused by global slowdown fears.
India, Asia's third-biggest economy, is facing a slowdown that has dampened demand for everything from cars to cookies, and Indian markets have slid more than 10% since hitting a peak in June. Stock indexes were set to finish the week about 3% lower, their sharpest drop since early May.
Chief Economic Adviser Krishnamurthy Subramanian's comment on Thursday, suggesting that companies should not depend on the government for a stimulus, added to the gloom.
Speaking at the same event in New Delhi as Subramanian, the vice-chairman of the government's top think tank reportedly suggested the government might have to take "extraordinary" measures to tackle the economic slowdown.
"I think different statements that are coming from different corners of the government are creating a lot of confusion for the market," said Siddharth Sedani, head of equity advisory at Anand Rathi Financial Services Ltd in Mumbai.
"Let's not forget, earnings are something that is a big dampener," referring to poor corporate earnings in the June quarter.
Net profits for India Inc grew at a moderate pace of 6.6% year-over-year in the three months to June, compared with a pace of 24.6% a year earlier, CARE Ratings said this week, based on an analysis of 2,976 companies.
On Friday, shares in cigarettes-to-hotels conglomerate ITC Ltd were the top loser with a 2% drop. Shares in miner Vedanta Ltd were the top gainer, rising 4.8% after a string of losses this week.
Meanwhile, the rupee hit a fresh eight-month low of 72.0475 and was last down 0.18% against the dollar.