The BSE Sensex edged higher for a second consecutive session on Tuesday as continued hopes for rate cuts boosted banks, while infrastructure shares such as Larsen & Toubro rose on optimism for a revival in stalled projects.
Broader gains in indexes were partly capped as telecom stocks such as Bharti Airtel
However, Indian shares are vulnerable to more volatility, analysts warned, especially ahead of an emergency meeting of G7 countries finance chiefs about the euro zone debt crisis later in the day.
Meanwhile, despite rising optimism the Reserve Bank of India (RBI) will cut interest rates, those expectations could easily be knocked back depending on inflation and industrial output data due out next week.
"Before the G7 meeting the market is in a wait and watch mode," Jagannadham Thunuguntla, head of research at SMC Investments and Advisors Limited.
"Post that, market will not recover much because ultimately only one thing can drive the market, which is growth that is missing."
The BSE Sensex rose 0.2 percent higher at 16,020.64 points on, marking another session of mild gains.
The Nifty rose 0.31 percent to 4,863.30 points.
Expectations for interest rate cuts are rising, as falling oil prices as well as weak growth in India are seen giving the Reserve Bank of India room to cut interest rates.
A Reuters poll on Tuesday showed 15 out of 20 analysts expect a rate cut at the RBI's meeting on June 18.
These hopes boosted banks for a second session, sending the NSE banking index up 1.05 percent, for a combined gain of 2.1 percent so far this week.
Infrastructure stocks gained on newspaper reports India's Prime Minister Manmohan Singh had called for a meeting of various government officials on Wednesday to discuss ways to kickstart stalled infrastructure projects.
Engineering and infrastructure firm Larsen and Toubro
However, among decliners, Bharti Airtel
The auction follows a Supreme Court order to revoke all permits awarded in the scandal-tainted 2008 sale.
Shares in MphasiS
The software and back office provider had earlier tumbled on market talk it would have to incur costs of 35 billion rupees to implement a government contract to run the software for some ATM machines across several states.