BSE Sensex recovered early losses on Thursday, rising for the third day, after a key ally of the government decided to support foreign direct investment in supermarkets in the upper house of the parliament.
Gains were led by a rebound in rate sensitive stocks such as ICICI Bank on hopes of traction in pension and insurance bills after FDI in retail.
ICICI Bank provisionally closed up 2 percent, while Tata Motors ended 2.3 percent higher.
The BSE index provisionally gained 0.49 percent, while the 50-share NSE Nifty ended up 0.52 percent.
Bahujan Samaj Party, which had abstained in the lower house, will now support the government's move to allow FDI in retail, which may help tilt the vote in the favour of the government.
The government won the vote in the lower house on Wednesday, but is in minority in the upper house.