Indian shares recovered some of their value on Wednesday after two successive days of dramatic falls triggered by fears of a global economic slowdown.
The mood in Mumbai was more upbeat after the markets rallied
Mumbai's Sensex index had risen 5% at the close of trading, after sinking 5% on Tuesday and more than 7% on Monday.
The recovery was tied to a move by the US Federal Reserve to make the biggest cuts to interest rates in 25 years.
Analysts are warning of further turmoil in the US, a major market for Indian exports and outsourcing contracts.
Fears of a global recession have triggered falls in sharp 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 decision to slash interest rates was followed on Wednesday by small gains across several indices in Asia and Europe.
However, analysts are urging caution and warning that indices will stay volatile for the coming months.
Mumbai's benchmark Sensex index closed 5.17% higher on Wednesday. The rival National Stock Exchange's S&P Nifty index recorded an 8% rise during earlier trading.
Indian investors have been warned more market turmoil is ahead
Both indices have seen dramatic falls during the last week.
The recovery eased some investor anxiety in Mumbai, where fraught scenes were reported earlier this week.
Dev Majumdar, a financial expert, told the BBC the US rate cuts had boosted "momentum and confidence".
Supriya Kurane, an investor who has recently began playing the markets, said: "Only short term investors and day traders need to worry. I have my money for the long term."
Speaking earlier this week, Dilip Bhat, an expert with the Prabhudas Lilladher brokerage, said the markets were facing "a long period of correction".
"The global meltdown continues and markets will take sometime to come to semblance of stability," he said.
Japan's Nikkei 225 earlier closed up 2%, and Hong Kong's Hang Seng added 8%.