MUMBAI The BSE Sensex rose on Monday, recovering from seven-month lows after slowing inflation and lower crude and gold prices led to hopes that the Reserve Bank of India will likely cut interest rates at its May review.
Lenders such as State Bank of India led gainers on hopes the Reserve Bank of India would now have room to ease monetary policy for a third time this year.
Investors also welcomed the sharp slump in gold and crude oil prices, which if sustained, would help ease narrow the current account deficit, a factor which has been cited by the central bank as a key variable in its monetary policy making.
"The commodity price movements played out in the market today. The lower WPI number has also raised rate cut hopes," said Sudip Bandyopadhyay, managing director and chief executive at Destimoney Securities.
"The market will continue to remain volatile. We will see counter specific and sector specific action."
The Sensex rose 0.63 percent, or 115.24 points, to 18,357.80 after earlier hitting its lowest intraday level since September 13.
The 50-share NSE index gained 0.72 percent, or 39.85 points, to 5,568.40.
Both indexes thus recovered from sharp falls on Friday, when the Sensex slumped 1.6 percent after software service exporter Infosys Ltd issued lower-than-expected revenue guidance, sparking a selloff in technology stocks.
Lenders gained after data showed wholesale price inflation cooled to 5.96 percent in March, lower than 6.84 percent in February.
The data raised expectations the RBI would cut interest rates, which would help loan growth and ease margin pressures, according to analysts.
Public sector banks could also benefit as they are big holders of government bonds, which could rally should the RBI eases monetary policy.
State Bank of India rose 3.1 percent, while Axis Bank (AXBK.NS) gained 2.4 percent. Shares in ITC Ltd (ITC.NS) ended up 2.41 percent.
Reliance Industries Ltd (RELI.NS) rose 2.4 percent ahead of its March quarter earnings on Tuesday, which is expected to show good profit growth.
Infosys LtdNS> rose 1.9 percent on value buying after slumping to its lowest closing low in a decade on Friday after it disappointed with a muted revenue guidance for the current fiscal year.
However, other IT stocks fell on caution ahead of earnings. Tata Consultancy Services (TCS.NS) fell 2.6 percent ahead of its results on Wednesday while HCL Technologies Ltd (HCLT.NS), which also reports on Wednesday, lost 1.4 percent down.
Gold loan providers slumped on fears that the sharp fall in gold prices will erode the value of the collateral and make some loans non-performing.
Muthoot Finance Ltd (MUTT.NS) fell 12.2 percent, while Manappuram Finance Ltd (MNFL.NS) slumped 9.8 percent.
Gold retailers also fell. Titan Industries Ltd (TITN.NS) was 4.1 percent lower.
(Additional reporting by Abhishek Vishnoi; Editing by Anand Basu)
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