Indian shares in the red.
The India's 30-share BSE index closed 875.4 points down at 16,729.94, its lowest close since September 21. India's two most valuable firms, Reliance Industries and state-run Oil and Natural Gas Corporation led the market lower.
The intra-day fall of 12.9pc was larger than Monday's drop of almost 11pc, but short of a 17pc intra-day fall in May 2004 that followed an unexpected election result.
Buying interest led by state-run insurance firms helped the market recover some ground. At the close, the index was 21.1pc below a record high hit on January 10.
The 50-share NSE Nifty index closed down 5.94pc at 4,899.30 points, having plunged as much as 14.6pc.
"Over time as better clarity emerges and sanity returns to the market, I think the Indian stock market should bottom out and outperform," said Chakri Lokapriya, who manages $1.3 billion worth stocks in BRIC markets for BNP Paribas in London.
"I would not say this is the bottom or not, but what I would say at the end of the year the market will close 25pc higher from its end-December levels."
A lot of funds have been tied up by Reliance Power's initial public offer, with the company saying it had received bids worth $190 billion for the $3bn of shares on offer.
Margin trading is where investors trade shares without paying the full purchase price. Instead a margin or percentage is paid as collateral that has to be topped up if the share price falls.
Margin calls, both by brokers to investors and by exchanges to brokers, added to the pressure, with brokers saying they were unable to trade until they paid their margin calls.
"This was the worst day for the market ... our terminals were shut and we could not do anything," Dadhich Bhatt, a broker with Pragya Securities, said.
The BSE index fell 11.5pc in the opening minutes of trade, triggering an automatic one-hour market halt and a call from the finance minister for calm.
Reliance Industries fell 7.3pc to 2,358.05 rupees, taking its losses over the past six sessions to 26.7pc.
ONGC fell 13.6pc to 962.55 rupees, a seventh straight fall that has seen its shares lose 26.4pc.
ICICI Bank fell 4.1pc to 1,124.75 rupees, a two-month closing low, hit by poor sentiment for financials and banks across the globe.
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