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Market breadth remained strong with 1,581 advances over 1,018 declines on the BSE
The benchmark indices trimmed initial gains to settle the day flat a day ahead of the release of key economic data that include GDP growth for the September quarter and the fiscal deficit data for October scheduled for Wednesday.
The S&P BSE Sensex closed the day at 26,394, up 44 points, while the Nifty50 ended at 8,142, up 15 points.
The broader market outperformed the headline indices with BSE Midcap index and BSE Smallcap index settling the day 0.5% higher each.
Market breadth remained strong with 1,581 advances over 1,018 declines on the BSE. A total of 198 shares were unchanged.
"The investors today realised that we had corrected to a great extent, and it was high time for a bounce-back. Also, there was tremendous opportunity in terms of value buying," said Gaurang Shah, Head Investment Strategist, Geojit BNP Paribas.
"The immediate target for the Nifty is seen at 8,020-8,050 on the lower side and 8,250-8,182 on the higher side," he added.
Meanwhile, the Lok Sabha today passed the Bill to amend Income Tax Act to impose tax on deposits made post-demonetisation without debate. Finance Minister Arun Jaitley moved the Bill amid uproar by the Opposition.
The government on Monday had proposed to levy a total tax, penalty and surcharge of 50% on the amount deposited post demonetisation while higher taxes and stiffer penalty of up to 85% await those who don't disclose but are caught.
Sectors and stocks
The Nifty Auto Index, which has dropped about 12% this month, added over 2%, and was the top sectoral gainer, led by gains in Eicher Motors, Bosch and Maruti Suzuki.
A faster end to the demonetisation drive could revive auto sales, believe analysts.
Other sectoral gainers included BSE Telecom and Consumer Discretionary Goods & Services.
Meanwhile, Tata Steel hit a two-week high in intraday deals after the company said its British arm Tata Steel UK would enter talks with Liberty House on sale of speciality operations.
Idea Cellular gained 4% on reports that the Aditya Birla Group's telecom major has put on block 100% stake in its tower arm.
The Exchange has sought clarification from Idea Cellular with respect to news article appearing on Moneycontrol.com on November 29, 2016 titled "Idea Cellular plans to sell 100% in tower arm for $1 billion,” the BSE said in a statement.
GDP data
Investors believe country's economy probably picked up steam in the July-September quarter on strong demand, but Prime Minister Narendra Modi's surprise demonetisation move this month will likely dent growth in coming months.
A Reuters poll today said country's GDP may have expanded 7.5% in July-September quarter from the same period a year ago, accelerating from a 15-month low of 7.1% in the April-June quarter.
Fitch Ratings, meanwhile, lowered country's GDP growth forecast for this fiscal year to 6.9% from 7.4%, saying there will be "temporary disruptions" to economic activity post demonetisation.
It said economic activity will be hit in the October- December quarter because of the cash crunch created by withdrawal and replacement of Rs 500 and Rs 1000 notes that accounted for 86% of the value of currency in circulation.
Oil prices fall
Oil prices fell over 1% on Tuesday on market jitters over whether producer cartel OPEC would be able to hammer out a meaningful output cut during a meeting on Wednesday, aimed at reining in a global supply overhang and propping up prices.
Non-OPEC oil production giant Russia confirmed on Tuesday that it would not attend the OPEC gathering, but added that a meeting between the group and non-affiliated producers at a later stage was possible.
Brent crude futures were trading at $47.69 per barrel in the afternoon trade, down 55 cents, or 1.14%, from their last close.
US West Texas Intermediate crude futures were down 51 cents, or 1.06 per cent, at $46.58 a barrel.
Global markets
European shares extended the previous session's losses with commodities-related stocks coming under renewed selling pressure after a sharp decline in metals and oil prices. The pan-European STOXX 600 index was down 0.4%.
Asian stocks closed on a mixed note ahead of key global events set to take place this week, including a meeting tomorrow between the world's largest oil producers and the release of the US nonfarm payroll report due on Friday.
China's Shanghai Composite settled the day with an uptick of 0.18%, while Hong Kong's Hang Seng and Japan's Nikkei closed 0.41% and 0.27% lower.
Photograph: Danish Siddiqui/Reuters
