Despite attractive valuations due to short coverings, a barometer index of the Indian equities provisionally closed flat on Thursday.
The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) gained only 39 points or 0.15 percent.
The Sensex had previously gained 171.15 points or 0.67 percent to 25,822.99 points on Wednesday.
The Indian equity markets opened on a lower note on Thursday, following a sharp downward correction in Japan's Nikkei.
The Asian markets fell after sharp correction in Nikkei index, which opened after two days of trading holiday. Nikkei index fell by 2.76 points. Hong Kong's Hang Seng dropped by 0.97 percent. However, China's Shanghai Composite Index inched up by 0.54 percent.
The Indian equity markets pared their initial losses due to bargain hunting which was prompted by attractive valuations.
Stock prices got attractive due to "short-coverings" as investors unravelled their investment positions on the expiry day of the September derivatives series.
The wider 50-scrip Nifty of the National Stock Exchange (NSE) also provisionally closed flat. It gained marginally by 26.25 points or 0.33 percent at 7,872.20 points.
The S&P BSE Sensex, which opened at 25,798.05 points, provisionally closed at 25,861.76 points (at 3.30 p.m.), up 38.77 points or 0.15 percent from the previous day's close at 25,822.99 points.
The Sensex touched a high of 25,949.90 points and a low of 25,670.96 points in the intra-day trade.
Market observers pointed out that short coverings made valuations attractive and lifted sentiments and prompted value buying.
"The markets opened lower on the back of sharp correction in Nikkei. However, it rose steadily due to short coverings on the expiry day of September series. Short coverings lifted prices," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.
Vaibhav Agrawal, vice president, research, Angel Broking, told IANS that the markets closed flat, reflecting a lack of direction in the absence of any major domestic triggers and continued uncertainty over the possibility of a US Fed's rate hike later in the year.
"We expect markets to start trading with a positive bias over the next couple of sessions led by the end of September F&O (futures and options) series and expectations of a rate cut in the RBI policy later this month," Agrawal told IANS.
The Reserve Bank of India (RBI) will decide on whether or not to ease the key lending rates during its upcoming monetary policy review slated for September 29.
Sector-wise, information technology (IT), consumer durables, healthcare, technology, entertainment and media (TECK) and fast moving consumer goods (FMCG) stocks supported the market recovery.
Notwithstanding the positive trend, capital goods, metal, banking and oil and gas sectors came under intense selling pressure.
The S&P BSE IT index augmented by 218.89 points, consumer durables index gained by 162.49 points, healthcare index increased by 127.22 points, TECK index rose by 94.72 points, and FMCG index was higher by 70.94 points.
The S&P BSE capital goods index receded by 150.40 points, metal index declined by 89.02 points, banking index fell by 71.21 points and oil and gas index was lower by 78.11 points.