Sensex and Nifty edged up on Tuesday as banks recovered from the previous session's losses on hopes of a pickup in credit growth following cuts in lending rates.
However, gains were limited as data released late on Monday showed India's annual infrastructure output growth slowed to 4.9 percent in November, compared with 6.6 percent in the previous month, as crude oil and natural gas production declined.
Indian sovereign bonds were headed for a fifth session of gains on signs of better-off fiscal situation following the government's move to curtail its market borrowing for the rest of the financial year.
India narrowed its weekly borrowings for the rest of the financial year by shaving 30 billion rupees each from the scheduled six weekly bond auctions until Feb. 10, the Reserve Bank of India said late on Monday. (http://bit.ly/2islPJt)
"With focus on the upcoming budget, markets are expected to be rangebound with a slight upward bias, helped by a pre-budget positive sentiment," said Neeraj Dewan, director at Quantum Securities.
Indian banks, led by market leader State Bank of India, announced sharp cuts to their lending rates after a recent surge in deposits.
The Nifty was up 0.34 percent at 8,207.1 as of 0643 GMT, while the Sensex was 0.29 percent higher at 26,672.31.
The NSE bank index rose as much as 0.81 percent, with State Bank of India gaining up to 1.15 percent and Punjab National Bank rising 2.51 percent.
Meanwhile, TVS Motors and Hero MotoCorp fell 3 percent and 2.2 percent, respectively, on weak December sales. http://bit.ly/2isx4BI
(Reporting by Samantha Kareen Nair in Bengaluru; Editing by Subhranshu Sahu)