Indian stocks briefly plummeted after regulators announced a crackdown on several brokers and banks following alleged market irregularities.
India's stock market has been racking up record gains recently
The key Bombay Stock Exchange fell by more than 4% in the first minute of trade, before recovering its losses.
The slump followed a statement by the Securities and Exchange Board of India, which said it had uncovered serious violations in recent stock flotations.
By the close, shares had recovered to finish up 0.14% at 11,851.93 points.
The sudden drop in shares came at a time of major gains for the Mumbai-based stock exchange, which has climbed by about 24% so far this year after rising by more than 42% in 2005.
At its lowest point, the exchange fell by almost 500 points to 11,344.61 shortly after opening on Friday.
Despite the eventual recovery, investors said they expected trade to remain volatile for some time.
"We expect the markets to remain choppy in coming sessions," said Manoj Kakaiya of India's ULJK Securities.
Indian regulators said they had carried out investigations into initial public share offerings - or IPOs - on the Bombay Stock Exchange between January 2003 and December 2005 and found "violations of serious a nature".
Officials said several operators had "cornered" IPO shares set aside for small investors, filing applications through thousands of accounts in fictitious names, before transferring them to major operators for a profit.
As a result, market regulators said they had banned 24 "key operators" from buying or selling securities on their own account, although the firms would be permitted to invest money for other clients.