Indian shares rose modestly on Tuesday after government data showed the headline inflation reached a 32-month low in July, although doubts persist over whether the RBI will cut rates at its September meeting.
Wholesale prices increased 6.87 percent annually in July, the lowest in more than two years, reflecting weak economic activity and lower fuel prices, data released by the Ministry of Commerce and Industry revealed. Economists expected the headline inflation rate to ease marginally to 7.2 percent from 7.25 percent in June.
The slowdown in inflation will only provide temporary relief to the government given the fact that deficient monsoon is set to push food prices higher in months ahead. As such, most analysts expect no change in interest rates at the next monetary policy meeting in September.
The benchmark BSE Sensex ended the session up 95 points or 0.54 percent at 17,728, while the broader Nifty index rose by 32 points or 0.61 percent to 5,380. Second-line stocks underperformed, with the BSE mid-cap and small-cap indexes rising about 0.3 percent each.
Banks led the gainers as the unexpected slowdown of inflation as well as weak export data increased room for further policy easing. HDFC Bank rose marginally, SBI added 0.2 percent and ICICI Bank gained over 2 percent.
Hit hard by the global slowdown, India's exports contracted 14.8 percent year-on-year to $22.4 billion in July this year, marking the steepest fall in three years, provisional data released today showed.
Automakers also ended on a firm note, with Tata Motors climbing almost 3 percent after it appointed Karl Slym, the executive vice president of one of General Motors' joint ventures in China, as the Managing Director of the company.
Steelmakers such as Tata Steel and Jindal Steel rose about 2.5 percent each, while ONGC and Coal India gained 1.8 percent and 1.6 percent, respectively, on better-than-expected Q1 earnings results.
Among the prominent decliners, Sun Pharma fell over 2 percent after Taro's minority shareholders rejected the company's sweetened offer for buying the remaining shares in Taro.
HDFC retreated 1.8 percent after the previous session's rally, Hindalco lost about a percent on earnings disappointment, Sterlite Industries declined 1.3 percent, Bajaj Auto lost a percent and Hero MotoCorp slid half a percent.
Maruti Suzuki eased 0.3 percent despite reports that it may resume partial production at its Manesar plant next week.
Reliance Power rose 0.9 percent as it reported a 23 percent rise in first-quarter profit. Reliance Infrastructure advanced 1.5 percent after the Anil Dhirubhai Ambani group firm reported a 24 percent fall in first-quarter profit, in line with estimates.
Suzlon Energy tumbled 4 percent after the wind turbine maker reported a huge loss of Rs 848.97 crore in the first quarter. Likewise, Lanco Infratech fell 3.3 percent after it reported Rs.441-crore quarterly loss. DLF slipped 0.8 percent after the realtor sold one of its premium 17-acre land parcel in central Mumbai to Lodha Developers for Rs 2,700 crore.
On the global front, Asian markets rose across the board as last week's bleak Chinese trade data as well as disappointing GDP data from Japan reinforced expectations of further stimulus measures from major central banks. Gains, however, were modest as investors awaited key economic data due out of Europe and the United States due later in the global day for further cues on additional monetary easing.
European stocks advanced, commodities rose and the euro extended gains against the dollar after French and German growth data beat estimates.
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