Sensex recovers from 3 pct loss; outlook remains grim

By Abhishek Vishnoi

MUMBAI (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 recouped on value buying.

Life Insurance Corporation was also spotted buying shares, two dealers told Reuters.

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.

Overseas investors 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.

"Although market has recovered smartly from its oversold zone, but for Nifty to sustain above 5325 looks difficult," said Vijay Kedia, director at private wealth management firm Kedia Securities.

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 rose 3.8 percent, while Infosys Ltd gained 2 percent.

Multiple dealers said overseas funds from Singapore and Hong Kong are lapping up IT shares on every level, citing this as a defensive play on U.S. recovery.

Wipro Ltd gained 3.6 percent after the announcement of its inclusion in the NSE 50-stock index effective September 27.

Oil explorer Cairn India Ltd 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 rose 6.8 percent after it said on Tuesday that it has given a loan of 1.77 billion rupees to unit National Spot Exchange Limited, to be exclusively used for payments to small investors.

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 ended 0.8 percent lower after earlier slumping 5.7 percent while Axis Bank Ltd fell 4.5 percent.

(Editing by Sunil Nair)