The Sensex was trading 40 points higher, while the Nifty rallied 8 points in early trade. Among the early gainers in trade were Gail, Tata Power and Sterlite Industries.

Larsen and Toubro continued to rally for a second day in a row and the stock was up 1.88 per cent in trade.

ITC, which rallied substantially on Monday was trading flat. Banking stocks were having a good session in trade with Union Bank up 1 per cent, while Bank of India also gained 1.1 per cent in trade. However, HDFC Bank and Kotak Bank lost marginal ground in trade.

Reliance Industries continued to rally despite reports that there could be a possibility of asking Reliance to furnish bank guarantees, which could be encashed if the company is found to be hoarding gas.

Power Grid Corporation was trading marginally lower after reports that the company has filed papers with the RoC for its follow-on public offer through which it hopes to raise over Rs 5,700 crore.

Infosys was trading higher despite reports of another important executive departure at the company.

Mid cap stocks were having a good session in trade with Bharat Forge and Karnataka Bank among the gainers.

Meanwhile, Asian markets were trading mixed with the Shanghai Composite seeing some selling pressure, while the Hang Sang continued to rally.

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