The stock market, battered in the past month after a change in government, shrugged off the inflation data, but dealers remain cautious as a big rise in interest rates could choke both demand from consumers and a nascent industrial recovery.
But Indian federal bonds tumbled to their lowest in 13 months on Friday after higher-than-expected inflation data fuelled concerns that a rise in local interest rates may be just around the corner.
"There's always been a lag between macro numbers and the stock market: people were anyway expecting a higher inflation rate because of higher oil prices, and they also expect interest rates to go up," said Ajit Sanghvi, director of Dimensional Securities.The benchmark 30-share Mumbai Stock Exchange index, which lost nearly eight percent in May, had risen 1.1 percent to 4,761 points in afternoon deals, led by cement, steel, and energy stocks.
Bonds hit 13-month lows
Government data showed India's annual wholesale inflation rate jumped to a four-month high of 5.89 percent in the week ended June 12 on a rise in food and manufactured product prices.
The yield on the benchmark 10-year bond rose nearly 10 basis points to 5.8641 percent - the highest since May 2003 - after the midday release of the inflation numbers.