Sensex, Nifty end higher for second straight session led IT, pharma shares

Indian shares recovered from a lacklustre start to end higher on Tuesday, with IT and pharma stocks leading the charge ahead of crucial US inflation data that could pave the way for interest rate cuts.

The Nifty 50 index closed up 0.42 per cent at 25,041.1, while the S&P BSE Sensex gained 0.44 per cent to 81,921.29.

Both the benchmark indexes rose about 0.25 per cent in early trade before surrendering gains, weighed down by heavyweight financials.

However, a 1.7 per cent rise in IT companies, ahead of Wednesday's US inflation report, helped lift domestic equities.

Indian IT firms gain a significant chunk of revenue from the United States.

"A softer-than-expected US inflation data could boost the chances of a 50 basis point Federal Reserve rate cut and spur a global stocks rally," said Sunny Agrawal, head of fundamental equity research at SBICaps Secuties, adding that markets have priced in a 25 basis point cut as the most probable scenario.

Pharma stocks gained 1.1 per cent after goods and services tax (GST) council recommended cutting tax on select cancer drugs.

Investors are seeking safety and parking money in defensive segments like consumer and pharma ahead of the likely Fed rate cut, Agrawal said.

In contrast, financials dropped 0.3 per cent, weighed down by insurers HDFC Life and SBI Life after posting modest growth in premiums for August.

Among individual stocks, pharma company Divi's Laboratories jumped about 5 per cent to a near three-year high on block deals.

Budget airline SpiceJet rose 3 per cent after Carlyle Aviation agreed to convert $30 million worth of lease arrears to equity.

The more domestically focussed small- and mid-caps rose about 1.2 per cent each.

Liquidity surplus in the markets is supporting the strategy of buying dips, but a clear directionality for domestic equities will only emerge after US inflation data and Fed rate decision next week, analysts said.