Investors are widely anticipating RBI will cut interest rates by 25 basis points tomorrow, easing for the first time since April 2012, after inflation last month eased to a three-year low.
The prospect of rate cuts, along with continued fiscal reforms from the government, have sparked solid gains in shares this month, leaving markets vulnerable to a selloff should RBI surprise by keeping rates on hold.
The Sensex has gained 3.5 per cent so far this month, thanks in a large part to continued strong foreign buying. Foreign institutional investors have bought $3 billion in the first 23 days of the month, marking a record high for that time period, according to a Goldman Sachs report on Monday.
RBI decision comes ahead of what is expected to be a volatile week, with continued earnings results and the expiry of derivatives on Thursday, while the Federal Reserve is set to conclude its two-day meeting on Wednesday.
The benchmark Sensex ended flat at 20,103.35 points, while the broader Nifty ended unchanged at 6,074.80.