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The Bank Nifty, a sectoral index on the NSE comprising banking stocks, finished 0.9 per cent higher. Shares in private sector majors ICICI Bank and Axis Bank rose 2.6 and 2.1 per cent respectively. Heavyweight SBI finished up 0.5 per cent.
Market breadth of about 1:1 favoured the upside, with 875 stocks closing higher on the NSE against 848 that ended lower. On the BSE, 1,329 stocks advanced while 1,287 declined.
The Nifty Financial Services, Private Bank, and Infra sectoral indices on the NSE rose at least 1 per cent each.
The rupee rose by 29 paise to 72.60 against the dollar, after global crude oil prices eased, despite the greenback hovering near 16-month highs against major peers overseas.
Crude oil prices fell by around 1 per cent on Tuesday after US President Donald Trump put pressure on the Organization of the Petroleum Exporting Countries (OPEC) to not cut supply to prop up the market.
Brent - the global benchmark for crude oil - declined by more than $1 per barrel to trade around $69 per barrel, down 20 per cent from four-year highs registered in early October this year.
On the other hand, sharp losses in pharma stocks limited the upside. The Nifty Pharma lost 1.4 per cent for the day, dragged by Sun Pharma, Aurobindo Pharma and Biocon, which finished 4.8 per cent, 2.6 per cent and 1.2 per cent lower respectively.
Retail inflation rate, which includes food and energy prices, dropped sharply in October to 3.31 per cent on a year-on-year basis, the slowest pace in 13 months and below the Reserve Bank of India's (RBI) medium-term target of 4 per cent for a third straight month, official data showed on Monday evening.
Taking comfort from easing inflation, the RBI is unlikely to raise key lending rates in its upcoming December review, say economists.
Separate data, released on the same day, showed growth in industrial production - or factory activity - stood at 4.5 per cent in September, as against an upwardly revised 4.7 per cent in the previous month.
(With agency inputs)