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No one was injured in the blast which took place around 2 pm., said Apoorva Hassan, the officer in-charge of Tejgaon police station.
Two persons came on a motorcycle and hurled the bomb wrapped in a cap near the Saarc fountain, about 50 yards away from the hotel at a street intersection, he said.
The two managed to escape and no one was arrested in this connection, he added.
Security around the hotel has been further strengthened after the attack.
It was not immediately whether the President, on a three-day state visit to Bangladesh, was inside the hotel or not.
The incident came on the second day of the 48-hour strike called by fundamentalist Jamaat-e-Islami party against the sentencing of three of its top leaders in 1971 war crimes cases.
None of the delegation members heard any explosion nor knew of any such incident, President's Press Secretary says.
Meanwhile, the President's Press Secretary Venu Rajamony said in a statement that "Bangladesh authorities have informed that about an hour back a crude cocktail was found and they are investigating into the matter".
"None of the delegation members heard any explosion nor knew of any such incident," the statement said.
"Indian security officials have expressed the view that this was a minor explosion", it said, adding that "bursting of such cocktails are common in Bangladesh during hartals and cannot be described as a bomb".
The statement said, "life in and around the Hotel in Dhaka, where the President is staying, is completely normal."
The President this morning addressed 10,000 students in an open air pandal in the Dhaka University to great acclamation from the students.
He was awarded an honorary doctorate by the President of Bangladesh who is also Chancellor of the University at the function.
Mukherjee is looking forward to meeting other dignitaries this afternoon and the President of Bangladesh once again this evening.
