The Sensex and the Nifty edged higher on Thursday, turning positive for the month, as a weaker rupee boosted IT shares such as Infosys, while banking stocks such as SBI rose on the first day of the winter session of parliament.
Sentiments also got a boost by the government's move to allow state-run Life Insurance Corp (LIC) to triple the maximum stake it can hold in other companies to 30 percent.
Investors are hoping that the government, caught between a tough macro environment and twin deficits, would have little choice but to pass some of the proposed bills to open up the insurance, pension and banking sectors in the winter session of the parliament.
"The reforms process has commenced once again which is a good launching pad for the market," said Kishor P. Ostwal, chairman and managing director of CNI Research Ltd.
LIC being allowed to raise its stake to 30 percent in companies will pave the way for disinvestment clearance, which in turn will address the key concern of fiscal deficit, added Ostwal.
The Sensex rose 0.31 percent, or 56.96 points, to end at 18,517.34, rising for the second day.
The Nifty rose 0.23 percent, or 12.95 points, to end at 5627.75.
Software services stocks were among the leading gainers, tracking the weakening Indian rupee.
Infosys Ltd rose 1.4 percent, while Wipro Ltd gained 1.1 percent.
Banking stocks rose on hopes the parliament will pass bills to liberalise the insurance, pension and banking sectors.
The government's decision on allowing LIC to raise its stake in companies to 30 percent is also helping banks, dealers say.
State Bank of India gained 1.8 percent, after falling 2.3 percent in November as of Wednesday's close. Axis Bank Ltd gained 1.7 percent.
State-controlled Hindustan Copper surged 11.27 percent, after falling as much as 6.4 percent, after the government said it would sell a 4 percent stake in India's third-largest copper producer on Friday.
Select consumer stocks also gained after Deutsche Bank recommended being selective in the sector. It said high inflation and weak job creation may weigh on the sector, even as the broader growth outlook and investment arguments remain compelling.
Deutsche said it prefers companies with "multiple levers to manage growth," and those with strong pricing power, ability to expand distribution, and with a track record of innovation to manoeuvre a potential slowdown.
As a result, the investment bank recommended ITC Ltd , Marico Ltd and Titan Industries as its top 'buy' stocks in the consumer goods space.
ITC rose 1 percent and Marico 1.3 percent, while Titan Industries fell 1.1 percent.
However, Dabur India fell 1.3 percent after Deutsche downgraded stock to 'sell' from 'hold', citing slowdown in volumes.
Shares in Blue Dart Express rose to the maximum daily limit of 20 percent on hopes that plans by its main stakeholder DHL Express (Singapore) Pte Ltd to sell a 6 percent stake will attract strong demand, raising prices.
Blue Dart said on Wednesday DHL Express (Singapore), part of DHL , will sell a 6 percent stake in the Indian air express courier firm via an offer-for-sale to comply with SEBI's regulation that all companies must have at least 25 percent public shareholding by next year.
Among other stocks that fell, Siemens India declined 1.3 percent ahead of its audited FY12 earnings results on Friday.
Shares in Indian drugmakers fell on speculation the government's final decision on the pricing policy for the sector might be more disruptive than expected.
Local media reports suggest a panel of ministers has agreed to settle on a market-based pricing mechanism, as expected, but capping drug prices at a simple average price of brands as opposed to the initial proposal of using a weighted average.
Cipla fell 0.6 percent, while Ranbaxy Laboratories ended 0.9 percent lower.