Sensex in defensive mode ahead of F&O expiry

MUMBAI (Reuters) - The Sensex edged higher on Tuesday as energy companies rallied after Saudi Arabia pledged to work towards oil price stability, although broader gains were capped on caution ahead of the expiry of derivatives contracts this week.

Traders said sentiment ahead of the expiry was especially cautious given the amount of contracts rolled over to the next month were running at below recent months, indicating caution about the market's outlook.

Volumes in derivatives have also taken a hit after India unveiled rules that raised the minimum contract size to 500,000 rupees ($7,535) from 200,000 rupees to reduce speculative trading among retail investors.

The rules came into effect from the start of the current November contracts.

"The market is too sluggish. Ever since the new contract has come, the derivative market has become very quiet," said Deven Choksey, managing director at KR Choksey Securities.

"The contract demands higher amount of exposure so obviously participation will get reduced to only proprietary traders and the global desk of institutional investors," Choksey said.

The broader Nifty was up 0.1 percent after losing as much as 0.47 percent earlier.

The benchmark BSE Sensex gained 0.14 percent after falling as much as 0.45 percent earlier.

Indian markets will be closed on Wednesday for a public holiday.

Resources shares gained after Saudi Arabia's cabinet said on Monday it was ready to cooperate with others to achieve market stability, days before the Organisation of the Petroleum Exporting Countries meets to review its year-long policy of not supporting prices.

Reliance Industries Ltd gained 1.7 percent, Bharat Petroleum Corp Ltd rose 0.6 percent, while Cairn India Ltd was up 1.3 percent.

Among other gainers, Housing Development Finance Corp Ltd rose 2.35 percent after losing 1.2 percent on Monday, while Hindustan Unilever Ltd was up 2.2 percent after shedding about 0.9 percent in the previous session.

Shares in Pfizer Ltd rose 3.2 percent after its parent Pfizer Inc's buyout of Botox maker Allergan on Monday.

But Nestle India Ltd fell 1 percent on reports that the government was looking to conduct more tests on its popular noodle snack Maggi.

($1 = 66.3550 Indian rupees)

(Reporting by Karen Rebelo in Mumbai; Editing by Anand Basu)