mumbai 06 13, 2012, 17:40 IST
The BSE Sensex barely gained on Wednesday, a day before key inflation data that could help determine whether the Reserve Bank of India (RBI) will cut interest rates and further spur a rally in domestic indexes.
The weak January-March economic growth data, S&P's warning of a sovereign downgrade, and the dismal industrial output data for April have all recently raised expectations for a rate cut from the Reserve Bank of India on June 18.
The wholesale price index on Thursday will be key, with investors particularly focused on core inflation. Should the data that strips out energy and food come at 5 percent or below, it would cement expectations for monetary easing, traders said.
The RBI could also opt to cut the cash reserve ratio, some traders said, or the amount of funds that lenders must park with the central bank.
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"If inflation increases month-on-month, then CRR is more likely. If it falls month-on-month, then rate cut alongside CRR can be seen," said Aneesh Srivastava, CIO of IDBI Federal Life Insurance, who oversees 1.3 billion rupees in Indian equities.
India's main 30-share BSE index gained 0.1 percent to 16,880.51 points, enough to notch it its seventh gain out of the past eight sessions.
The benchmark index has now gained 4.1 percent so far in June, with a bulk of those gains tied to expectations for relief from the RBI.
The broader 50-share NSE index also gained 0.1 percent to be at 5,121.45 points.
Equity investors in India are still headed for a volatile couple of weeks, as the WPI and RBI meetings will also be accompanied by Greek elections this weekend and the Federal Reserve's meeting next week.
Goldman Sachs recommended investors stay "underweight" in Indian equities on a three-month horizon as markets may slide further on the back of "a sluggish domestic and global growth outlook.
Among individual gainers on Wednesday, shares in India's auto stocks fell on media reports the government plans to impose additional levies in sales of diesel cars.
Maruti Suzuki India fell 3.22 percent, Mahindra & Mahindra lost 1.8 percent, while Tata Motors declined 2.3 percent.
Power equipment maker Crompton Greaves fell 2.6 percent, while air conditioner maker Voltas dropped 2.9 percent after Credit Suisse initiated coverage of each with 'underperform' ratings, citing concerns about earnings growth for each company.
However, among gainers, Oil India gained 1 percent, while ONGC rose 2.8 percent, as traders said the share prices have not yet fully reflected the recent slump in oil prices.
State-owned producers such as ONGC share the cost of subsidising refineries by selling crude to them at a discount.
Larsen & Toubro gained 2.6 percent, after Kyodo news agency reported Mitsubishi Heavy Industries Ltd. <7011.T> plans to acquire a stake in unit L&T Shipbuilding within a few years, quoting an MHI executive.
However, the president of L&T Heavy Engineering told Reuters there had been "no discussions on this at all."
(Additional reporting by Abhishek Vishnoi; Editing by Rafael Nam)