By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex edged higher on Monday as Reliance Industries rose ahead of July-September earnings due later in the day, while ITC hit record highs as defensive sectors regained some of their appeal after under-performing last month.
However, sentiment remains subdued after the powerful rally last month, especially after stronger-than-expected inflation data on Monday appeared to reduce the likelihood the Reserve Bank of India will cut interest rates at the end of October.
As the impact from September's fiscal and economic reforms fade, investors fear lack of monetary policy action could prevent further gains in stock markets.
Corporate earnings this week, including from Tata Consultancy Services
"Both earnings and RBI policy would be critical for the market from here onwards," said Sandeep J Shah, chief executive officer of Sampriti Capital.
"Apart from earnings, now what the market need is government action impacting the real economy."
The Sensex rose 0.21 percent, or 38.37 points, to 18,713.55.
The 50-share Nifty rose 0.2 percent, or 11.20 points, to 5,687.25 points.
Gains in Indian shares were also helped by higher European shares on hopes Spain will request a bailout and following data in China showing subdued inflation and rebounding exports.
Reliance Industries rose 0.5 percent ahead of July-September earnings due later in the day.
Analysts expect the Indian energy conglomerate to post net profit of 53.9 billion rupees for the quarter ended September 30.
Defensive sector are regaining their luster after under-performing last month when investors favoured riskier stocks.
Pharmaceutical stocks gained on hopes the government will stick to a recommendation from a panel of ministers last month to cap prices of drugs deemed essential using the less constraining market-weighted prices as the key criteria.
Banks gained on hopes the RBI would at least consider cutting the cash reserve ratio, or the amount of deposits lenders must keep with the central bank, after headline inflation in September rose at a faster-than-expected 7.81 percent.
State Bank of India rose 0.6 percent.
Sugar stocks gained after government decided to allow exports under the open general licence scheme (OGL) for one more year and on hopes the country would lift some curbs on the industry.
However, among stocks that fell, Infosys