Nervous Indian investors joined a global selloff on Friday, with weak industrial output adding to the overall gloom.
As a result, stocks crashed, with the Bombay Stock Exchange Sensitive Index recording its worst week in almost 18 years, reflecting an Asia-wide slide in stock prices.
ICICI Bank, the talk of the town on Friday, plunged the most since its trading debut in September 1997.
The stock dropped Rs 90.10, or 20 per cent, and was the worst performer among financial stocks in Asia on Friday. The stock had crashed about 26 per cent in the first half of trading but recovered partially later in the day.
Among other major losers, Reliance Communication, Reliance Infra, Suzlon and Tata Steel declined 17 to 22 per cent on a fresh build-up of short selling positions.
The Reserve Bank of India's dramatic decision earlier in the day to cut the cash reserve ratio -- the amount of cash lenders need to set aside as reserves -- by a further percentage point to 7.5 per cent had some soothing effect for a while when the index pared nearly half the early morning losses of over 1,000 points.
This is the single-biggest cut since 2001.
But that clearly was not enough to allay fears that the deepening credit crisis will push the global economy into recession.
The gloom became all-pervasive after the Index of Industrial Production rose just 1.3 per cent in August against 10.9 per cent last August and after a revised 7.4 per cent gain in July.
This is the weakest pace of industrial output growth during a month in the past 10 years.
The Sensex finally closed the day with a loss of 800.51 points, or 7.1 per cent, to 10,527.85. This is the second biggest fall in percentage terms.
The loss during the week was 1,998 points, or 15.95 per cent -- the biggest weekly drop since December 21, 1990.
At one point on Friday, the index slumped as much as 9.6 per cent and came within 186.4 points of a trading halt.
The 50-share S&P CNX Nifty Index on the National Stock Exchange declined 233.70, or 6.7 per cent, to 3,279.95.
The BSE 200 Index slid 7.4 per cent to 1,253.50. Nifty futures for October delivery fell 6.6 per cent to 3,303.30.
Securities and Exchange Board of India Chairman C B Bhave also tried to allay concerns, saying there are no systemic problems and ruled out a ban on short-selling.
The government, however, is clearly concerned since Finance Minister P Chidambaram and Planning Commission Deputy Chairman Montek Singh Ahluwalia were asked to cancel their visits to Washington to attend the World Bank-International Monetary Fund meet.
Citing tight liquidity conditions, RBI also called off government bond auctions for Rs 10,000 crore (Rs 100 billion) that were scheduled for Friday.
The rupee, meanwhile, fell to a lifetime low of 49.26 against the dollar before recovering to close at 48.47.
The rupee fell in the morning as foreign institutional investors pulled out money from stock markets amid the global financial turmoil.
It recovered during the day due to RBI intervention and sale of the US currency by local banks.
Earlier, Asian stocks tumbled, driving Japan's Nikkei 225 Stock Average to its worst weekly drop in history and triggering a suspension of futures trading. The Dow also gyrated, falling below 8,000 in early trade before retracing its losses.
All 13 BSE sectoral indices dipped 4 to 11 per cent. The BSE Realty Index was the major loser, crashing 11.30 per cent, followed by consumer durables (down 10.11 per cent), metals (down 9.25 per cent), capital goods (down 9.22 per cent), power (down 8.80 per cent) and the Bankex (down 7.84 per cent).
The BSE second-rung benchmark indices, the BSE mid-cap index and the BSE small-cap index tanked over 7-8 per cent each.
Reliance Industries on Friday dropped 7.3 per cent, its lowest in almost 18 months. Infosys Technologies slid 2.3 per cent after cutting its full-year profit forecast, citing a deteriorating economic outlook.
However, there are some who believe the market may bounce back soon. Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services, said, "FIIs are selling and there are no buyers. However, we will be in the buying zone soon as this irrationality cannot continue for long."