Indian shares snapped a four-session decline and nudged up 0.2 percent on Tuesday thanks to firm global markets, but the outlook remained downbeat after inflation came in well above expectations. The wholesale price index (WPI) climbed 9.06 percent in May, with a sharp rise in manufacturing inflation from the previous month offsetting a slowdown in the rise of food and fuel prices and adding to the likelihood of a rate increase on Thursday.
"That was a pretty rapid price rise, especially for manufacturing WPI, used as a proxy for core inflation," said. Ramya Suryanarayanan, economist at DBS Bank in Singapore. "As for the RBI meeting, the sharply higher-than-expected WPI does increase the odds of a 25 basis points hike this week relative to before, but we still think the RBI may choose to adopt a 'wait-and-see' attitude at the policy meeting," she said, referring to the Reserve Bank of India.
The 30-share BSE index rose 0.23 percent or 42.63 points to 18,308.66, with two-thirds of its components advancing. Lenders led the gains on hopes the central bank could be moving near the end of its tightening cycle. State Bank of India, ICICI Bank and HDFC Bank rose between 0.4 percent and 1.5 percent. The banking sector index closed 0.8 percent higher.
Top mortgage lender Housing Development Finance Corp bucked the trend fall 1.3 percent as Citigroup cuts its stake in the firm to 9.9 percent from 11.4 percent. Advancing shares beat declining ones in the ratio of 1.3 to 1 while 505 million shares changed hands on the NSE, but there was little conviction. Average five-day daily volume on the NSE has dropped to 456 million shares from the 90-day daily average volume of 611 million shares.
The 50-share NSE index gained 0.3 percent to 5,500.50. Tata Motors fell 2.6 percent to 984 rupees after UBS downgraded the stock to "sell" from "buy" and cut the price target to 920 rupees from 1,360 rupees on fears of constricted growth and margins.
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