The BSE Sensex ended marginally higher in a choppy session on Tuesday, closing at the highest in a month as gains in Reliance were offset by losses in lenders such as SBI on caution ahead of April derivative contracts expiry and the RBI policy review next week.
The weak inflation print in March and the recent declines in the prices of oil and gold have stoked hopes of at least a 25 basis point cut in benchmark interest rates at the central bank's annual policy review on May 3.
A top economic adviser to the country's prime minister also said on Tuesday India's worst economic slowdown in a decade has bottomed out and growth is expected to pick up to 6.4 percent in the current fiscal year.
"Fiscal and current account position has definitely improved and therefore 10-12 percent returns in Sensex from here onwards are possible in a year" said Aneesh Srivastava, chief investment officer at IDBI Life Insurance.
The BSE Sensex rose 0.05 percent, or 9.53 points, to end at 19,179.36, after falling as much as 0.66 percent earlier in the day.
The Nifty rose 0.04 percent, or 2.50 points, to end at 5,836.90, closing above the psychologically important 5,800 level, gaining for a third day.
Goldman Sachs said in a report it now expects the RBI to cut the repo rate by 50 basis points by mid-2013, versus its previous forecast of an equivalent cut only in the March quarter of 2014.
Reliance Industries rose 1.8 percent on reports that the government is clearing some of its oil blocks.
Technology shares, which slumped after disappointing results and guidance, saw some buying interest. Infosys Ltd rose 0.8 percent and HCL Technologies gained 1.5 percent.
Shares in Idea Cellular Ltd rose 2.3 percent ahead of its January-March earnings results on Thursday.
ICICI Bank Ltd rose 1.1 percent, while Hero MotoCorp Ltd gained 2.7 percent ahead of their results on Friday.
However, among stocks that fell, lenders such as State Bank of India was down 1.7 percent on caution ahead of RBI policy review next week and on profit-booking after rising 12.3 percent so far in April, as of Monday's close.
Shares in Cairn India Ltd fell 1.5 percent after its January-march earnings lagged estimates, dealers said.
Cairn India on Monday said its January-March net profit rose 17.1 percent to 25.64 billion rupees versus 21.86 billion rupees in the same quarter last year.
HDFC Bank Ltd , India's No.3 lender by loan value, fell 1.3 percent on profit-taking even as it met forecasts with a 30 percent rise in quarterly profit on Tuesday, led by higher loan growth, fee income and stable asset quality.