The BSE Sensex recovered from early losses and was quoted was up 113 points at 20,096 at 12,30 am.
Earlier, the Sensex opened lower at 19,918.20 and dropped further to 19,826.96 before quoting at 20051.50 at 1158 hrs from the previous close. The NSE Nifty moved down 14.45 points, or 0.24 per cent, to 5,913.95.
Shares fell amid initial volatility after Reserve Bank of India (RBI) Governor Raghuram Rajan said monetary policy should aim at lowering inflation expectations. Sentiment was also hit after the International Monetary Fund forecast India's economic growth would dip to 4.25 per cent in the year ending March 31, 2014.
The major losers were ICICI Bank (2.45 pc), State Bank of India (1.6 pc), Bharti Airtel (1.43 pc), Maruti Suzuki India (1.23 pc), Bharat Heavy Electricals Ltd (BHEL) (1.11 pc), NTPC (1.04 pc) and Coal India (1.01 pc).
Buying was seen in realty, healthcare and FMCG sector stocks.
Foreign institutional investors bought a net Rs 226.32 crore of shares yesterday, according to provisional data from the stock exchanges.
Asian stock markets were mostly lower as the stalemate in Washington increased fears that the world's largest economy may breach the federal debt ceiling.
Key indices in China, Taiwan, Hong Kong and Indonesia fell while indices in Singapore and Japan rose.