Nifty, Sensex rise as drop in inflation raises hopes of monetary easing

By Krishna V Kurup

(Reuters) - Indian shares rose on Tuesday, after inflation rate plummeted to an 18-month low, raising optimism that the central bank could ease monetary policy next month, as the nation faces a manufacturing slowdown and weak growth in the farm sector.

India's annual retail price inflation declined to 2.19 percent in December, its lowest level since June 2017, as food prices fell for a third straight month, government data showed on Monday.

The outcome was lower than the 2.33 percent recorded in November and broadly in line with a 2.20 percent increase forecast by economists in a Reuters poll.

The Reserve Bank of India's (RBI) Monetary Policy Committee, which mainly monitors retail inflation data and kept interest rates unchanged last month, will have a leeway to soften its monetary stance at its Feb. 7 meeting, economists said.

The broader NSE Nifty was up 0.88 percent at 10,832.10 as of 0532 GMT, while the benchmark BSE Sensex rose 0.88 percent to 36,170.63.

"The macro numbers are showing a deceleration. Though some market participants are probably building it in that RBI stance could change," said Dhananjay Sinha, head-Institutional Research, Economist and Strategy at Emkay Global Financial Services.

"There might be certain positivity in the market, as the data is coming on the backdrop of considerable uncertainty and a correction in the last session. However, I expect that RBI will not cut rates soon because the core inflation is still higher and the decision will rather be on the core inflation number than the headline inflation," Sinha said.

Index heavyweights such as Infosys Ltd and Reliance Industries Ltd led the gains on the Nifty, rising as much as 3.2 and 2.8 percent, respectively. Infosys shares hit their highest since Oct. 8.

Banks also cheered the inflation relief with most of them trading in the green. Yes Bank Ltd rose nearly 5 percent to an over eight-week high, while HDFC Bank Ltd gained up to 0.6 percent.

IT stocks also firmed footing, with Nifty IT index rising as much as 2.3 percent. Wipro Ltd shares advanced 3.8 percent in their best intraday percentage gain since Dec. 13, after it said on Monday that a bonus share issue will be considered in its board meeting on Friday.

(Reporting by Krishna V Kurup in Bengaluru; Editing by Shreejay Sinha)