The BSE Sensex closed at its highest in 1-1/2 months on Tuesday, led by gains in Hindustan Unilever after its parent made a $5.4 billion offer to raise stake in it, while the finance minister's comments that tax residency certificate is enough proof of residency for tax purposes also helped.
The gains also tracked advances in European share markets as some investors positioned for the European Central Bank and the U.S. Federal Reserve to extend their monetary measures to stimulate economic growth.
The RBI's policy review and its stance on future rate cuts, especially after the recent slump in commodity prices, are important for the near-term direction of the market, with many analysts saying that a 25 basis point cut seems already discounted at current valuations.
Citigroup said in a report that some investors in Europe referred to India as a 'tease' market, which is on the radar once again due to lower commodity prices, expansionary global monetary conditions and prospects of a good monsoon.
"RBI decision and direction, headroom of future rate cuts is all important now," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance, who oversees 40 billion rupees worth of investments in the capital market.
A 25 basis point cut is mostly discounted after the recent rally, Srivasatava added.
The benchmark Sensex rose 0.6 percent, or 116.68 points, to end at 19,504.18, gaining for the first month in three with a 3.5 percent rise in April.
The broader Nifty rose 0.44 percent, or 26.10 points, to end at 5,930.20, closing above the psychologically important 5,900 level, gaining 4.4 percent for April.
The markets will be closed on Wednesday for the May Day holiday.
Finance Minister P. Chidambaram's clarification that a tax residency certificate issued by a foreign government would be an accepted proof of residency for tax purposes also helped the stocks, dealers said.
Hindustan Unilever Ltd shares rose 17.4 percent to mark their all-time highest close after Anglo-Dutch consumer goods giant Unilever Plc offered to pay as much as $5.4 billion to raise its stake in its Indian unit.
Other FMCG stocks also saw a rub-off of Unilever's open offer. Colgate-Palmolive India Ltd rose 5.8 percent and ITC Ltd ended 1.3 percent higher.
Shares in Dabur India Ltd rose 0.8 percent after its January-March net profit rose about 17 percent to 2.01 billion rupees.
Sterlite Industries (India) Ltd rose 4.2 percent after its January-March profit beat consensus estimates by a wide margin.
Jet Airways shares gained 2 percent a day after a founder group company of the carrier said it would sell a stake as part of public float rules.
However, among stocks that fell, lenders like HDFC Bank lost 1.9 percent on caution ahead of the RBI policy review on May 3.
Shares in IDFC Ltd fell 2.5 percent a day ahead of its January-March earnings results.