The BSE Sensex and Nifty rose on Tuesday for a third consecutive session as software services exporters such as Tata Consultancy gained on continued hopes for monetary stimulus from global central banks.
Fuel retailers such as Hindustan Petroleum Corp also rose after the oil ministry demanded the finance ministry to compensate these companies for losses sustained in the April-June quarter for selling fuel at cheaper rates.
Banking shares ended mixed. The Reserve Bank of India (RBI) sought to improve liquidity by cutting the proportion of securities that lenders must hold, but the action was offset as the central bank also raised its inflation outlook, casting doubt about the future timing and scope of interest rate cuts.
"Expectations of future policy action are likely to get further back ended given the sticky inflation and monsoon concerns," said Sandeep Nanda, Chief Investment Officer, Bharti AXA Life Insurance.
The 30-share BSE Sensex rose 0.54 percent to 17,236.18 points, while the 50-share Nifty gained 0.56 percent to end at 5,229 points.
Indian shares fell for the month, with the BSE index ending down 1.1 percent, reversing the strong gains seen in June.
The monthly falls lagged the 3.6 percent gain in the MSCI Asia-Pacific index excluding Japan.
The optimism last month over potential policy reforms has been replaced in July by concerns the government would struggle to implement fiscal measures given disagreements among ruling coalition parties.
Weaker-than-expected rains during the monsoon season are also raising worries about inflation. The drought threatening the country could make it harder for the government to raise subsidised fuel prices, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, told Reuters.
The government is soon expected to name home minister Palaniappan Chidambaram as the new finance minister, and he will need to reassure markets the government is serious about reducing its fiscal deficit and boosting growth.
"The policy ball is now firmly in the government's court, with the RBI expressing concern on fiscal policy and subsidies," said Bharti AXA Life Insurance's Nanda.
On the positive side for Indian stocks, foreign investors bought a net 90.7 billion rupees in July as of Monday, according to provisional data, their biggest purchases since February.
BANKS SEE LITTLE CHEER IN RBI
Among gainers on Tuesday, software services exporters rose on hopes the Federal Reserve and European Central Bank would unveil further monetary stimulus steps at their policy meetings this week.
Top-ranked Tata Consultancy Services
Fuel retailers advanced after India's Oil Secretary G. C. Chaturvedi said he will seek 320 billion rupees in cash compensation from the finance ministry as compensation for selling fuel at a loss during the April-June quarter.
Hindustan Petroleum Corp
Other oil stocks, which also help subsidise fuel prices, rose on hopes for a more favourable policy stance from the government.
State-run explorer Oil & Natural Gas Corp
Banking shares ended mixed. The RBI kept interest rates unchanged on Tuesday as widely expected, but surprised markets by cutting the statutory liquidity ratio, or the amount of securities such as gold and government bonds that lenders must hold as a proportion of deposits.
However, the SLR cut was seen as having a marginal impact given banks already hold a high proportion of securities, with investors more worried about the RBI's hawkish policy stance because of inflation concerns.
State Bank of India declined 1.3 percent, though Axis Bank
Among other decliners, Titan Industries Ltd
Shares in Bharti Airtel
A Bharti official declined to comment.
