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Indian shares recovered on Wednesday after a two-day slump mirroring global markets which gained on the back of Chinese stimulus and hopes that the US will delay raising rates.
The BSE Sensex gained 138 points or 0.5% to close at 26,631. The NSE Nifty ended up about 43 points and closed at 7,975.
However, the trading session remained choppy signalling nervousness on the part of investors ahead of the release of the policy statement post the US Federal Reserve meeting on Wednesday.
"The market is likely to remain volatile for some more time. There is some short build-up in the system as hedging activity is picking up ahead of the uncertainty," said Nikhil Golani, head (institutional equity), Tata Securities.
The short build-up is said to have picked up in the last two days, as per analysts.
The US Federal Open Market Committee (FOMC) meeting is being watched by analysts for the US central bank's stance on the timing of interest rate hikes and announcement of further $10-billion tapering in the US Fed's monthly stimulus package - quantitative easing 3 (QE3). Concerns about an earlier-than-expected rate hike in June next year has been keeping investors nervous.
But on Wednesday hopes that low US interest rates could hold on for longer boosted market sentiment pushing up market heavy weights, particularly stocks of the software giants such as Infosys and TCS which gained 2.3 and 1.3%, respectively.
Shares in Europe and Asia were up about a% led by the 500 billion Chinese yuan stimulus push provided by the People's Bank of China to five of the largest Chinese lenders. Analysts believe that the move serves as an indication that demand in the world's largest consumer could be reviving and could keep stocks elevated for some more time.
But for Indian stocks, flows could remain under pressure in the short-term, said analysts as the markets continue to remain in the over-heated zone.
"This is just nervous money that is getting corrected. Worried investors would take some profits off the table," said Golani.
"Broadly, we expect Nifty to decline further in coming sessions and consolidate around 7,800 prior to any major directional move. Participants especially investors' should utilize this opportunity to accumulate fundamentally strong counters with medium to long term investment perspective," said Jayant Manglik, President-retail distribution, Religare Securities.
On Wednesday, foreign portfolio investors were net-buyers of equities at Rs 136 crore as per provisional data from the exchanges.
Domestic institutions were net-sellers at Rs 161 crore. Most sectors ended the day up barring the banking index which was flat and the consumer durables sector which declined over a%.
The top performers were the technology firms which were up 1.5% followed by the power and auto sector.
