(Reuters) - The BSE Sensex ended flat on Wednesday, recovering from a nearly 3 percent fall earlier in the session, led by gains in software services exporters such as Tata Consultancy Services, while banks recovered on value buying.
Life Insurance Corporation was also spotted buying shares, two dealers told Reuters, helping spark a recovery in shares. India's state-run insurer is often seen as a buyer that will step in to buy shares when markets are tumbling.
The rupee slumped to a record low below 68 to the dollar on growing worries that foreign investors will continue to sell out of a country facing stiff economic challenges and volatile global markets.
Foreign institutional investors (FIIs) sold about $1 billion worth of shares in the previous eight sessions through Tuesday, with global sentiment weakening further amid uncertainty about the prospect of U.S.-led military action against the Syrian government.
"On bottom-up basis, India remains overweight, but on top-down basis we are spoiled due to currency, which is why some FIIs are trimming positions," said Samir Arora, Fund Manager, Helios Capital.
"Endgame for the current decline would be the day rupee stops falling alongside government measures like a substantial diesel price hike," he added.
The Sensex rose 0.16 percent, or 28.07 points, to end at 17,996.15, after earlier falling as much as 2.9 percent in the day.
The Nifty fell 0.05 percent, or 2.45 points, to end at 5,285, recovering from an earlier fall of 3.2 percent.
Shares of Indian software companies surged on expectations of improving business prospects due to the rupee's depreciation and a recovery in the U.S. market.
Tata Consultancy Services Ltd (TCS.NS) rose 3.8 percent after earlier making its all-time high at 1,946.10 rupees while Infosys Ltd (INFY.NS) gained 2 percent after earlier hitting its 52-week high at 3,130 rupees.
Multiple dealers said overseas funds from Singapore and Hong Kong were active buyers of software service exporter shares on every level, citing this as a defensive play on U.S. recovery.
Wipro Ltd (WIPR.NS) gained 3.6 percent after the announcement of its inclusion in the Nifty effective September 27.
Oil explorer Cairn India Ltd (CAIL.NS) rose 5.3 percent with Brent pushing above $117 and the U.S. benchmark at its highest in more than two years, amid worries a possible military strike against Syria may raise tensions in the Middle East.
Financial Technologies (India) Ltd (FITE.NS) rose 6.8 percent after it said on Tuesday that it has given a loan of 1.77 billion rupees to National Spot Exchange Limited, allowing its commodities exchange unit to continue settlements with small investors after last month suspending trading in forward contracts.
However, the NSE Bank index ended 1.2 percent lower after earlier falling as much as 5.7 percent. It has fallen nearly 25 percent since mid-July, when the RBI started tightening liquidity.
The continued selling in banking shares is a concern given foreign investors have high ownership of Indian banks, traders said .
ICICI Bank Ltd (ICBK.NS) ended 0.8 percent lower after earlier slumping 5.7 percent while Axis Bank Ltd (AXBK.NS) fell 4.5 percent.
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