The BSE Sensex rose for a third day after the Bahujan Samaj Party (BSP) said it would support foreign direct investment in supermarkets in a vote on Friday in the Rajya Sabha.
Shares were down for most of the day before rebounding on news the BSP would support the government's move to allow FDI in retail, which may help tilt the vote in the government's favour.
The government won the vote in the Lok Sabha on Wednesday, but is in minority in the Rajya Sabha.
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 gets cleared.
"The market got a boost from BSP chief Mayawati's statement which coincided with a positive European share opening," said Dhananjay Sinha, co-head of institutional research at Emkay Global Financial Services.
Vote on FDI in retail remains the key that will decide the market's direction in near term, added Sinha.
0.49 percent, or 94.94 points, to end at 19,486.80, to mark its highest close since April 26, 2011.
Earlier in the session, shares fell on profit-taking after the index had gained over 5 percent in the previous nine sessions since the start of the winter session of parliament in late November.
The broader Nifty rose 0.52 percent, or 30.40 points, to end at 5,930.90.
Among the gainers, ICICI Bank ended up 1.42 percent, while Tata Motors rose 2.15 percent.
Shares in Pantaloon Retail rose 1.04 percent after the BSP's announcement. India's top retailer has surged 62.4 percent since September 14, when the government approved 51 percent FDI in multi-brand retail.
Shoppers Stop , which operates the Hypercity retail chain, rose 0.7 percent. The stock has gained 32.1 percent since the reform move was announced.
Shares in fertiliser makers such as Rashtriya Chemicals rose on expectations that the union cabinet will approve a cost-friendly investment policy for urea.
Rashtriya Chemicals rose 2.65 percent, National Fertilizers gained 2.7 percent, Tata Chemicals rose 1.6 percent.
Among stocks that fell, GMR Infrastructure closed 1.25 percent lower after a Singapore court ruled in favour of the Maldives on Thursday, over the South Asian island nation's move to cancel a $511 million airport development contract with the Indian company.
Technology shares fell for a second day, with Cognizant's SEC filing clouding revenue outlook for the sector.
Infosys Ltd ended down 1.86 percent, Tata Consultancy Services fell 1.33 percent, while HCL Technology lost 2.1 percent.
Cognizant Technology Solutions Corp , in a filing to the SEC on Tuesday, said its top executives will receive 100 percent of their performance-linked shares if the company achieves revenue of $8.5 billion next year, a 16 percent rise over its projected 2012 revenue.