Indian markets will open on Friday after earlier dramatic share falls.
India's economic performance has been a driver of demand for shares
The Bombay Stock Exchange's benchmark index, the Sensex, witnessed the biggest fall of the year soon after it opened on Thursday morning.
It rallied during the day but by the late afternoon was still down by nearly four percent on Wednesday's figures.
Taking cues from global turmoil, the Sensex buckled under a wave of panic selling triggered by losses in the US credit markets.
Brokers say the Indian markets are clearly nervous following the crisis in the global markets.
The BBC's Zubair Ahmed in Mumbai says that India's stock markets have been on the rise since 2004, riding partly on the back of heavy investments by foreign institutional investors.
The fall is in contrast to July when the Sensex burst through the 15,000 mark, surging to a record high amid optimism about economic growth and corporate profits.