Retail inflation is expected to have picked up to a five-month high in August, with consumer prices forecast to rise 3.20 percent from a year ago, a Reuters poll showed.
IndusInd Bank Ltd, which is in exclusive talks to buy microlender Bharat Financial Inclusion Ltd, fell 2.4 percent after rising more than 5 percent in the previous session.
"The IndusInd Bank (potential) deal is expected to open up more distribution channels in the banking sector and this expectation is lifting banking stocks," said Sunil Sharma, chief investment officer at Sanctum Wealth Management.
Bank of Baroda and Axis Bank Ltd were up more than 1 percent each, while HDFC Bank gained for a sixth straight session, climbing as much as 0.9 percent.
Tata Steel Ltd jumped as much as 4.6 percent, its highest since February 2011, after Germany's Thyssenkrupp AG said talks were in the final stages to merge its European steel business with that of Tata Steel.
ITC Ltd rose as much as 1.4 percent, its third straight session of gains.
Meanwhile, Apple Inc distributor Redington (India) Ltd rose as much as 4.2 percent to hit a record high ahead of the expected launch of "iPhone 8" later on Tuesday.