Share prices fell sharply on Tuesday at India's two main indexes, amid fears that a recession in the US could lead to a global economic slowdown.
Brokers are bracing for further turmoil in the markets
Mumbai's main Sensex stock index fell 9.8% within minutes, triggering an automatic one-hour halt in trading. It recovered to close 4.97% down.
The rival National Stock Exchange closed 5.9% down.
Finance Minister P Chidambaram urged Indian investors to "remain calm" and ignore the turmoil in Western markets.
"There's no reason at all to allow the worries of the Western world to overwhelm us," he said.
He said the Indian economy was expected to grow at 9% this year and 8.5% next year.
Fears of a global recession have triggered falls in share prices on markets worldwide.
Concern is growing that US plans for a $145bn (£76bn) package of tax cuts to encourage spending might not be enough be revive the economy.
The US is a major market for Indian exports and outsourcing contracts.
'Time to buy'
Tuesday's losses in Indian shares came after a fall of 7.4% on Monday.
The Sensex initially fell 9.5% on Tuesday morning, causing an automatic one-hour halt in trading.
It recovered briefly and was at one point down no more than 3%. But at the end of trading, it had fallen further to close at 4.97%.
Despite assurances from the finance minister that enough liquidity would be provided to brokers, there were scenes of panic and confusion in Mumbai, with many investors expressing shock at the dramatic slide in prices.
"It's mayhem, there is blood on the streets," Surjit Bhalla, the head of Oxus Research and Investments told the CNN-IBN news channel.
The share slide took many in Mumbai by surprise
But he said he felt fears of a recession in the US were "overdone" and the steep falls had created new opportunities for investors.
"There is a lot of value now in the market. I don't know when the last time was that we saw such value in the market," he said.
Ali Asgar, an Indian businessman and investor in petrol, said he believed the economy would stay strong despite the stock market falls.
"This is also the time to buy more shares which I will do as soon as the market re-opens," he said.
Shares in Karachi's benchmark KSE index closed 0.65% down.
Many analysts are predicting indexes worldwide could fall further in coming weeks.
London's main FTSE 100 share index dropped more than 3% on Tuesday, one day after posting its biggest fall since the 11 September attacks in the US.
Earlier, Asian markets tumbled with Japan's Nikkei index closing down 5.7%, taking its decline this year to 18%.
In China, the main Shanghai Composite Index closed down 7.2% at a five-month low, having lost 17% in the past six days of trading.
Trading was also suspended briefly in South Korea, where the market dropped more than 6%, while Hong Kong's Hang Seng index lost more than 8%.