Indian share prices bounced back 1.36 percent on Tuesday on bargain-hunting after posting the sharpest fall in nearly a year, a day earlier, dealers said. They said sentiment remained subdued as investors fear India's central bank could raise interest rates further to curb inflation.
The benchmark 30-share Mumbai stock exchange Sensex closed up 169.21 points at 12,624.58. On Monday, the Sensex slid 4.72 percent to 12,455.37, its biggest one-day drop since May 18, 2006 after the central bank hiked a key short-term lending rate by a quarter point to 7.75 percent.
Inflation is riding at 6.46 percent, nearly a percentage point above the bank's tolerance range of 5.50 to 5.50 percent. "This was a relief rally. The buying momentum is missing and we expect weakness ahead," said Naresh Garg, chief investment officer at private sector Sahara Mutual fund.
The market is now looking ahead to the central bank's quarterly review of the economy on April 24 to determine if further rate hikes are likely, with some hopeful that a tightening cycle that began in 2004 will come to an end.