In a volatile trading session, the benchmark indices pared most of its losses to turn flat in the afternoon trade on renewed buying in auto and realty stocks after many banks announced reduction in lending rates.
At 02:25 pm, the S&P BSE Sensex was trading at 26,622, down 4 points, while the broader Nifty50 was ruling at 8,183, down 2 points.
Broader market, however, outperformed the headline indices. BSE Smallcap index rose 1%, while BSE Midcap added 0.5%.
The market breadth, indicating the overall health of the market, was strong. On BSE, 1,781 shares rose and 799 shares fell. A total of 101 shares remained unchanged.
"Short term outlook for the market remains negative till Nifty trades below 8,289. We expect targets in the range of 7,715-7,680 in short term," said Devang Shah, independent consultant & advisor.
Shares of real estate and cement companies were trading higher in an otherwise weak market after Prime Minister Narendra Modi announced a slew of incentives to boost rural and urban housing post demonetization.
UltraTech Cement, Ambuja Cements, ACC, Dalmia Bharat, JK Lakshmi Cement, India Cements, Heidelberg Cement, Prism Cement and JK Cements from the cement sector and Oberoi Realty, DLF, Housing Development & Infrastructure (HDIL), NBCC, Godrej Properties, Indiabulls Real Estate and J Kumar Infra from the real estate were up in the range of 2%-5% on the BSE.
Eicher Motors rallied 5% to Rs 22,851, extending its four-session long gains, after the company reported a 42% jump in December motorcycle sales at 57,398 units. It had sold 40,453 units during the same month last year.
Oil marketing companies such as HPCL, BPCL and IOC gained up to nearly 2% after they increased petrol prices by Rs 1.29 a litre - the third increase in a month, and diesel price by 97 paise a litre - the second hike in a fortnight.
Among decliners, SBI declined 3% to Rs 242.80 and Punjab National Bank fell 2% to Rs 113.30 after these banks reduced their marginal cost of funds based lending rate (MCLR) by 90 basis points (bps), and 70 bps, respectively across all maturities.
Bajaj Auto was down 2% to Rs 2,581 after the company announced 22% decline in total sales in December at 225,529 units as against 289,003 units in the same month last year.
Meanwhile, hit hard by the demonetisation move, the manufacturing sector contracted in December as new work orders and output took a knock for the first time in 2016, a monthly survey showed today.
The Nikkei Markit India Manufacturing Purchasing Managers’ Index (PMI) — an indicator of manufacturing activity — fell to 49.6, down from 52.3 in November.