Market turns around from morning crash, regains 1,100 points

Indian markets showed a sharp recovery from its morning lows and traded little changed over the last session led by gains in banking stocks. The Sensex was down nearly 1,154 points, while Nifty was 300 points in the red at the opening on Wednesday.

At 1:30 pm, the Nifty 50 and Sensex were down 0.1 percent each after falling nearly 2 percent earlier in the session from the close on Tuesday.

The market had crashed in the opening hour as investors were spooked by a higher US inflation print that had beat the Wall Street anticipation and stoked concerns of tighter monetary policy by the Federal Reserve. The August CPI in the US soared to 8.3 percent on-year and 0.6 percent on-month as against an estimate of 8 percent and 0.3 percent, respectively.

The surging inflation has raised the prospect of a more aggressive move by the US Fed. Markets now expect the terminal Fed Funds rate to be 4.25 percent. There is a 20 percent chance of a 100 basis point hike in the policy next week, according to whiffs in the market.

"Markets have recouped major parts of early losses. The market reasoning appears to be that the sharp correction in the US markets, triggered by worse-than-expected US inflation, is unlikely to impact capital flows to India. Despite slowdown in the US, China and the Euro Zone, India is in a bright spot with strong growth," said VK Vijayakumar, Chief investment Strategist at Geojit Financial Services. "India will outperform in economic growth and market performance. This is the fundamental support to the Indian market."

Since the last few sessions, banking stocks traded higher with the RBI data showing demand for credit in good health. Bank Nifty stayed in the green through five straight sessions, gaining 5 percent. Since the start of September, ICICI Bank climbed 5 percent, HDFC Bank 3 percent, Axis Bank 7.5 percent and Indusind Bank 15.5 percent.

The RBI data for the week ended August 26 showed the credit growth of Indian banks was at a nine-year high of 15.5 percent on-year. Outstanding credit in the banking system stood at Rs 124.30 trillion at the end of August 26 with banks having lent close to Rs 6 trillion between April and August.

Analysts said the recent robust data of auto, purchasing managers index, GST numbers and favourable monsoon are encouraging, aided by the upcoming festive season, easing crude prices and return of foreign investors. Since the start of August, FIIs have bought around $7 billion worth of Indian equities.

"The domestic markets, compared to global markets, are better placed when it comes to strong macroeconomic data, continued FII inflow and oil price fall to 7-month low. One should see that the recovery strength should hold the same in the second half of the day which will give a clear signal for the bullish tone to take a new high in the medium term," said Prashanth Tapse, Senior VP - Research at Mehta Equities.