The Sensex and the Nifty fell on Tuesday after worse-than-expected retail inflation data dented hopes of an interest rate cut by the central bank next month, while Tata Motors declined on continued worries over slowing sales in China.

Higher food prices pushed India's retail inflation to an eight-month high in June, government data released on Monday showed, raising concerns that the Reserve Bank of India would have no leeway to cut rates at its policy review in August.

Meanwhile, wholesale prices fell at a faster-than-expected annual rate of 2.4 per cent in June, their eighth straight decline, government data released on Tuesday showed.

"People are caught between WPI and CPI," said G Chokkalingam, founder of Equinomics, a Mumbai-based research and fund advisory firm.

"The WPI shows bad sentiment for the industrial economy, (while) CPI shows less optimism on the rigid stance of the RBI on a rate cut," Chokkalingam said.

The Sensex ended down 28.29 points or 0.10 per cent at 27,932.90 while the Nifty finished 5.55 points lower at 8,454.10.

Sentiment was also hit after Credit Suisse downgraded Indian equities to 1 per cent "underweight" from 1 per cent "overweight" in its Asian portfolio, saying it was a tactical move based on valuations.

Tata Motors fell more than 4 per cent after Brilliance China Automotive Holdings issued a profit warning on Monday, stoking fears that a slowdown in China's luxury car market will hurt unit Jaguar Land Rover's sales.

Falls in blue chips also weighed on the Nifty with HDFC down 0.8 percent and ITC lower 0.5 percent.

Banking stocks such as Kotak Mahindra Bank fell 0.8 per cent, while ICICI Bank dropped 1 per cent.

Meanwhile, Dr. Reddy's Laboratories' shares rose 0.5 percent after the company launched a copy of Actavis Plc Alzheimer's drug Namenda, in the United States.

Oil-related stocks surge

Oil-related shares rose on landmark Iran deal. Oil rig provider Aban Offshore surged 15.6 per cent. Iran contributes almost a third to total revenues for Aban Offshore, said analysts.

Tumbling oil prices after the deal also spark gains in refiners and user industries.

Jet Airways gained 4.3 per cent, Hindustan Petroleum Corp moved up 3 per cent, Indian Oil Corp rose 3.2 per cent.

Global markets

European stocks edged lower on Tuesday after a strong four day rally, with investors unsure whether Greece would be able to get the support of its parliament behind a bailout deal designed to avert bankruptcy.

China's main indexes eased early on Tuesday hit by selling in blue chips, but small caps extended their rebound as hundreds of companies resumed trading after recent suspensions. Hong Kong shares also weakened, dragged lower by listed mainland companies.

Japan’s Nikkei was up by 1.4 per cent.

The US Dow Jones Industrial Average ended 1.222 per cent higher in yesterday’s trade after Greece reached a bailout deal with its international creditors.

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