Benchmark equity indexes reversed course and edged up on Tuesday as inflation data soothed investors' nerves somewhat. Still, downside risks remain as global markets were spooked by Wall Street hitting a bear market milestone on fears of a looming recession.
The Sensex and Nifty had another rough start on Tuesday after plunging in the previous two sessions.
But the 30-share BSE Sensex turned green, up nearly 200 points, while the broader NSE Nifty gained about 70 points after inflation data in Asia's third-largest economy eased in May.
Retail inflation eased to 7.04 per cent in May, after touching an eight-year high of 7.79 per cent in April, but remained above the central bank's tolerance band for a fifth month in a row, suggesting the Reserve Bank of India would continue with rate hikes in August.
Nifty IT index was up 0.9 per cent, after having fallen 11.6 per cent so far this month. Infosys was the top boost on the Nifty 50 index, up 1.3 per cent.
The Nifty metal index was up 0.7 per cent, with Ratnamani Metals and Tubes the top gainer at 2.4 per cent.
But downside risks remain.
Broader Asian shares tumbled, with the MSCI's broadest index of Asia-Pacific shares outside Japan down 0.9 per cent early on Tuesday. Australian shares S&P/ASX200 sank 5 per cent in early trade, while Japan's Nikkei stock index was down 1.74 per cent.
The negative tone in Asia follows a bleak session in the US on Monday. Goldman Sachs forecast a 75 basis points hike at the Federal Reserve's policy meeting on Wednesday.
"The US will see rate rises faster and higher than Wall Street has been expecting," James Rosenberg, Ord Minnett advisor in Sydney, told Reuters. "There will likely be the double impact of earnings forecasts being trimmed and further price to earnings derating."
Expectations for aggressive US rate hikes rose after inflation in the year to May shot up by a sharper than predicted 8.6 per cent, its fastest in over four decades.
Fears of higher rates leading to a US recession kicked the S&P 500 down nearly 4 per cent, while the Nasdaq Composite lost nearly 4.7 per cent and the Dow Jones Industrial Average fell about 3 per cent.
The benchmark S&P 500 is now down more than 20 per cent from its most recent record closing high, a common definition of a bear market.