As the stock benchmark Sensex crashed by over 700 points to slip below 17,000-point level for the first time since June 2010, the government said that the markets were reacting in a panic mode due to plunge in overseas markets.
"Our view is that our fundamentals are very strong and our markets will be able to overcome this panic reaction," Economic Affairs Secretary R Gopalan said.
"I am sure the investors will find merit in investing in our markets and the markets will soon recover," he added.
The sharp plunge on Indian bourses followed an overnight meltdown in the US market amid concerns that the American economy might slip back into recession. Negative trends in Asian and European markets further added to the selling pressure on Indian bourses.
Gopalan said the stock market plunge had "nothing to do with the fundamentals of the economy."
"Indian economy is doing very well. Even the PMEAC (Prime Minister's Economic Advisory Council) projected a growth rate of 8.2 per cent for this year and the government is very keen to hold the fiscal deficit at 4.6 per cent," he noted.
In today's trade, stocks of companies with significant focus on exports and interest rate-sensitive indices were among the worst hit, on fears that they might be affected more by uncertainty in the US and other foreign markets.
Gopalan said investors might have turned nervous "because of the global condition, especially when the US conditions are not that good...."
"And European markets are not doing well because of certain unsettled things in Spain and Italy... Obviously the market is reacting in a little panic mode," he added.
Gopalan said almost all the emerging markets were doing well and Indian markets should also recover soon.