The BSE Sensex rose for a second straight session on Monday, as Mahindra & Mahindra rallied after it sealed a share-swapping deal with Spain's CIE Automotive, while lenders gained on value-buying even after the RBI kept rates on hold.
Gains also tracked firm global shares after last week's tumbles, as investors hunkered down for the U.S. Federal Reserve's meeting later this week.
The Reserve Bank of India kept interest rates unchanged on Monday, warning of upward risks to inflation as its currency is among the hardest hit amid a global emerging markets sell-off. The decision had been largely expected although analysts had seen an outside chance of a rate cut.
Investors are now keenly awaiting the Federal Reserve's outlook on its bond-buying programme on Wednesday and the pace of foreign institutional investment flows for determining the near-term direction of the market, dealers said.
"RBI so far was saying limited room for rate cuts but today it said that if inflation remains subdued then there is scope for cuts," said Hemant Kanawala, head of equity at Kotak Life Insurance, who manages over $1 billion in capital markets.
The benchmark BSE Sensex rose 0.77 percent, or 147.94 points, to 19,325.87, its highest close in a week.
The broader Nifty gained 0.72 percent, or 41.65 points, to 5,850.05, closing above the psychologically important 5,800 level for a second day.
Foreign institutional investors snapped a 10-day selling streak in India's index futures on Friday after they bought 5.46 billion rupees worth of index futures, further helping the gains.
This marked a reversal from net sales of 83.91 billion rupees in June as of Thursday's close.
Mahindra & Mahindra
As part of the deal, Mahindra Group will merge all its auto components businesses into its Mahindra Forgings
Bank Nifty was down 4.43 percent for June as of Friday's close.
Larsen & Toubro
Orchid Chemicals & Pharmaceuticals
However, among stocks that fell, Hindalco Industries