Indian shares were largely flat on Tuesday as investors booked profits in lenders amid caution ahead of a widely-anticipated interest rate cut at the central bank's policy meet on Wednesday.
However, both indexes fell briefly after data on Tuesday showed that Indian factory activity plunged in July to its lowest since Feb. 2009, after Prime Minister Narendra Modi's new tax policy severely hurt output and demand.
Investors booked profits in lenders such as Bank of Baroda Ltd <BOB.NS> and Canara Bank Ltd <CNBK.NS> which declined 1 percent each after two straight sessions of gains. State Bank of India <SBI.NS> fell as much as 1 percent, pulling back from a rally in the previous session after it cut deposit rates on most savings accounts.
"This (SBI's rate cut move) reinforces our expectations that the RBI might lower the benchmark repo rate by 25 bps," DBS Group Research said in a note.
The Reserve Bank of India is expected to cut interest rates on Wednesday in response to an inflation rate running well below target, a Reuters poll showed.
The broader NSE Nifty was up 0.13 percent at 10,089.75 as of 0657 GMT, while the benchmark BSE Sensex was 0.06 percent higher at 32,533.03.
Meanwhile, the Nifty auto index rose as much as 1.2 percent to hit a record high, on expectations of higher sales numbers from Indian automakers in July.
Automakers have increased production to fill up the gap in inventory prior to the launch of the Goods and Services Tax and will therefore ship more vehicles to dealers, said Mahantesh Marilinga, senior research analyst at Finquest Securities.
Maruti Suzuki rose as much as 2.2 percent to touch an all-time high, after reporting a 21 percent increase in July sales.
Shares of Tech Mahindra Ltd <TEML.NS> rose as much as 7.3 percent after the company reported a better-than-expected rise in quarterly profit on Monday, helped by new clients for its digital services business.
InterGlobe Aviation Ltd <INGL.NS>, which owns IndiGo airlines, gained as much as 3.1 percent after reporting a record quarterly profit on Monday powered by growth in passenger revenue.
(Reporting by Jessica Kuruthukulangara in Bengaluru; Editing by Sunil Nair)