The BSE Sensex and Nifty benchmarks surged 0.5 per cent on Thursday despite headline inflation rising faster-than-expected 6.84 per cent in February.
The Sensex traded 100 points higher at 19,461, while the Nifty advanced 30 points to 5,881 as markets hit the day's high post inflation data.
Wholesale price index rose at 6.84 per cent in February against an annual rise of 6.62 per cent in January, but traders focussed on the core inflation data, which slipped below the 4 per cent mark for the first time in many months.
"The core inflation at 3.8 per cent is comfortable. I expect the RBI to cut rates by 25 basis points in the policy because growth is low at 4.5 per cent, fiscal consolidation is ahead of expectations and core inflation is falling substantially," Anjali Verma, economist at Phillpcapital told Reuters.
The manufactured products inflation slowed down to 4.51 per cent indicating weak demand, analysts said.
The inflation data gives the Reserve Bank of India room to ease monetary policy when it meets next week, the prime minister's economic adviser, C Rangarajan, said.
Banking stocks surged nearly 1.5 per cent on rate cut hopes, while realty stocks gained 0.3 per cent. Auto stocks pared losses and were down 0.4 per cent.
State Bank of India shares traded 2.5 per cent higher, while HDFC Bank gained 1.9 per cent. ICICI Bank, India's biggest private lender traded 1.3 per cent higher.
(With inputs from Reuters)
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