Indian shares ticked higher on Wednesday after two consecutive sessions of sharp falls, while the rupee fell to a fresh low, stoking fears of an interest rate hike by the central bank at its next meeting in October.
Investors seemed reluctant to take positions as they awaited data on August retail inflation, due after market hours, which likely eased below the central bank's medium-term target on softer food prices, according a Thomson Reuters poll.
If the forecast comes true, this would give the Reserve Bank of India a breather after it raised rates in its previous two meetings. But this could be temporary as the weakening rupee and rising crude oil prices would boost consumer prices.
The rupee continued its decline, hitting a new low of 72.92 per dollar, with two traders spotting mild intervention by the central bank.
"What is dominating the market is the rupee move and what it does to inflation and the rate hike, which in turn could have an impact on banking stocks. A 25 bps rate hike looks probable enough in October," said Harendra Kumar, managing director at Elara Securities.
"Market is too worried about the currency depreciation and correction in emerging markets, which optically looks very large but is very isolated to China and select sectors on the indices."
Meanwhile, broader Asian shares slipped to 14-month lows as investor confidence was hurt by the latest round of threats in an intensifying U.S.-China trade conflict.
The broader NSE Nifty was up 0.05 percent at 11,292.60 as of 0648 GMT, while the benchmark BSE Sensex was 0.14 percent higher at 37,464.19.
Consumer staples led the gains. ITC Ltd rose 1.6 percent, while Hindustan Unilever Ltd was the top percentage gainer with a gain of 2 percent.
Meanwhile, Tata Motors Ltd fell 3.2 percent after the chief executive of its Jaguar Land Rover unit said on Tuesday a wrong Brexit could cost tens of thousands of car jobs and would risk production for the company.