The BSE Sensex rose 0.4 percent on Tuesday to its highest close in more than six months, helped by a late bout of short-covering, although investors remained cautious after a recent rally in the market.
Gains were led by State Bank of India(SBI.NS_0>SBI.NS) and Tata Motors (TAMO.NS) after better-than-expected results, while automobile and infrastructure-focused stocks rose on hopes of an easing in interest rates.
The main 30-share BSE stock index closed up 75.73 points, or 0.43 percent, at 17,848.57 points, but trading was limited to a narrow range through most of the session, with investors avoiding large positions.
Fifteen of its components ended lower.
The run-up has been so sharp, people are feeling shaky entering at these levels, said Ambareesh Baliga, chief operating officer at Way2Wealth Securities.
At the same time, even those who are looking to sell are holding out, waiting to see where market will peak out.
The index posted weekly gains for six consecutive weeks prior to the current one, helping it rise more than 15 percent so far in 2012, fuelled by foreign fund inflows of about $4 billion this year. It had declined nearly 25 percent in 2011.
Global markets remained under pressure after rating agency Moody's warned it may cut the triple-A ratings of France, Britain and Austria, and downgraded six other European nations including Italy, Spain and Portugal, citing growing risks from Europe's debt crisis.
The overseas cues kept a check on the Indian market, despite encouraging inflation data.
The headline inflation slowed to its lowest level in more than two years in January as food prices fell, data showed, increasing pressure on the central bank to cut rates to battle the country's economic slowdown.
Because of the IIP data and inflation today, there is a feeling building up for a rate cut, but I guess that effect will wear out in the next few days, Way2Wealth's Baliga said.
The Reserve Bank of India is widely expected to start cutting interest rates in the quarter beginning April 1, as it looks to stimulate an economy that is headed for its slowest growth in three years, but some believe it could move faster.
State Bank of India (SBI.NS), which on Monday reported a better-than-expected 15 percent rise in quarterly profit, rose 3.3 percent. Private sector rival ICICI Bank (ICBK.NS) gained 1 percent, while the sector index finished 0.8 percent higher.
Tata Motors (TAMO.NS) led sharp gains in auto stocks after beating estimates with a 41 percent jump in quarterly profit, driven by strong sales at its Jaguar-Land Rover unit. The stock ended 3.7 percent up after rising to their highest in more than a year.
Shares in carmakers Maruti Suzuki, Mahindra & Mahindra (MAHM.NS) and two-wheeler maker Hero MotoCorp rose between 2 and 3 percent on hopes easing interest rates will boost demand as buyers have been deterred by high financing costs.
Shares in Larsen & Toubro (LART.NS), the country's largest engineering and construction firm, rose after short-covering late in the session. The stock closed 3.9 percent higher.
Cipla Ltd (CIPL.NS) fell 6.1 percent to its lowest close in nearly six weeks after the drugmaker reported a lower-than-expected 16 percent rise in its December-quarter net profit.
ONGC fell 1.7 percent after the disinvestment secretary said a panel of ministers will meet on Wednesday to consider a share sale in the state-run oil producer.
The 50-share NSE index closed 0.5 percent higher at 5,416.05 points. In the broader market, 817 gainers edged out 634 declines on heavy volume of 928.2 million shares.
STOCKS THAT MOVED
* Sasken Communication Technologies(SKCT.NS) rose by its maximum daily limit of 20 percent to 129.30 rupees after the company said its board would consider a share buyback.
* Lanco Infratech (LAIN.NS) rose 16.4 percent to 18.80 rupees after a senior executive said the company is in talks to raise $600 million to $750 million by selling a minority stake in its power business to investors.
* Punj Lloyd rose 3.3 percent to 61.65 rupees after the civil engineering firm posted a profit of 703.4 million rupees in the December quarter, compared with a loss of 621.3 million rupees in the previous year.
TOP THREE BY VOLUME
* Lanco Infratech on 102.1 million shares.
* Suzlon Energy (SUZL.NS) on 30.7 million shares.
* IFCI on 30.6 million shares.