India's stock markets have plunged to a three-year low despite assurances by top officials that Asia's third largest economy can be cushioned from the global economic turmoil. As Anjana Pasricha reports from New Delhi, the Central Bank is infusing more liquidity in the financial system in a bid to restore confidence.  

Stock broker reacts as he watches share prices at brokerage in Mumbai, 10 Oct 2008

The Mumbai stock index, the Sensex, plunged by 800 points Friday, bringing it down to 10,527 points. The losses since Monday piled up to more than 16 percent, making it the worst week in the history of Indian stock markets.

The stock market slide continued despite an announcement by the Central Bank that it will make an additional $12 billion of credit available to ensure that there is no liquidity crisis in the financial system.

But neither the Central Bank's move, nor reassuring statements by the government convinced investors that India will remain immune from the global financial crisis.  

Finance Minister P. Chidambaram says the Indian financial system is stable, and has the resilience to weather the storm blowing across the world.

He says liquidity conditions have tightened, but the government will ensure that there is enough credit to support economic growth.  

"We will watch the situation carefully and continuously and respond swiftly to the needs of the market," Chidambaram said. "Steps will be taken to infuse more liquidity if required."  

The finance minister also gave assurances that India's banking system is sound, and well regulated.  

Banking stocks have been falling heavily since the global financial turmoil began to unravel.

The worst-hit is India's largest private sector bank, ICICI, whose shares fell by more than 20 percent Friday. But its head, Chanda Kocchar says that the bank faces no problems.  

"We have adequate liquidity given the current condition, and even in our international operations we have sufficient liquidity," Kocchar said.

Traders say the Indian stock market is reflecting the panic around the globe. Heavy selling by foreign investors is adding to the gloom. Foreign investors have sold shares worth nearly $1 billion this week, taking the total outflow this year to $5 billion.

That has put pressure on the Indian rupee, which has fallen to a six-year low against the dollar.

In addition there are worries that although the country's financial system may ride out the global turmoil, the economy will not be able to sustain high growth as major world economies head toward a recession.