Shares on India's Bombay Stock Exchange have suffered their biggest one-day fall in value in its history.
The benchmark Sensex index at one stage dropped by 872 points to 11,346 - a 7.1% fall. It rallied slightly by close of trading, ending the day 6.8% down.
Analysts say the main cause is the falls in shares elsewhere in the world on Wednesday, particularly Wall Street.
European markets on Thursday showed signs of rallying, boosted by corporate earnings in the UK and France.
Prices of all the major shares traded on the Bombay exchange fell as the index began sliding following Wednesday's Wall Street drop.
"Indian markets never correct... they always crash"
"Something had to give... the market had risen very quickly and was already fragile, so when we were hit overnight with fears of rising US inflation and weak Asian markets, jittery investors bailed," Andrew Holland of DSP Merrill Lynch told Reuters.
But some brokers say prices fell also because of rumours that the government could increase higher taxes on foreign funds investing in Indian stocks.
"If we hear some reassuring words from the finance minister, who knows the markets may bounce back on Friday," stock broker Atul Shah told the BBC.
Foreign enthusiasm
This year has seen the Sensex breaking records, going through the 10,000 points barrier in February and the 12,000 barrier in April.
Foreign investors have been pumping money into Indian markets, keen to take a share of its fast-growing economy.
They spent a record $10.7bn (£6bn) on Indian shares last year, encouraging Indian savers to push more of their money into equities.
But Hemen Kapadia, an analyst with the investment advisory firm Morpheus Incorporated, says Thursday's falls have "vitiated" the feel-good times in the market.
"Indian markets never correct," he told the BBC. "They always crash and the individual investor is the one who suffers the most in such a situation."
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