Indian shares edged higher on Monday as Reliance Industries rose ahead of July-September earnings due later in the day, while ITC hit record highs as defensive sectors regained some of their appeal after under-performing last month.
However, sentiment remains subdued after the powerful rally last month, especially after stronger-than-expected inflation data on Monday appeared to reduce the likelihood the Reserve Bank of India will cut interest rates at the end of October.
As the impact from September's fiscal and economic reforms fade, investors fear lack of monetary policy action could prevent further gains in stock markets.
Corporate earnings this week, including from Tata Consultancy Services, will drive markets in the near-term, as will developments in the euro zone, especially regarding whether Spain requests a bailout.
"Both earnings and RBI policy would be critical for the market from here onwards," said Sandeep J Shah, chief executive officer of Sampriti Capital.
"Apart from earnings, now what the market need is government action impacting the real economy."
India's BSE index rose 0.21 percent, or 38.37 points, to 18,713.55.
The 50-share NSE index rose 0.2 percent, or 11.20 points, to 5,687.25 points.
Gains in Indian shares were also helped by higher European shares on hopes Spain will request a bailout and following data in China showing subdued inflation and rebounding exports.
Reliance Industries rose 0.5 percent ahead of July-September earnings due later in the day.
Analysts expect the Indian energy conglomerate to post net profit of 53.9 billion rupees ($1.02 billion) for the quarter ended September 30.
Defensive sector are regaining their luster after under-performing last month when investors favoured riskier stocks.
ITC rose 1.2 percent after earlier hitting all time high of 287.55 rupees. The cigarette maker has gained 5.2 percent so far this month, compared to a 0.3 percent fall in the NSE index, reversing the performance trend of both in September.
Hindustan Unilever also hit a record high, at 579.90 rupees, and ended the session up 0.6 percent.
Pharmaceutical stocks gained on hopes the government will stick to a recommendation from a panel of ministers last month to cap prices of drugs deemed essential using the less constraining market-weighted prices as the key criteria.
Ranbaxy Laboratories gained 1.3 percent, Dr Reddy's Laboratories rose 1 percent, while Cipla added 1.6 percent.
Banks gained on hopes the RBI would at least consider cutting the cash reserve ratio, or the amount of deposits lenders must keep with the central bank, after headline inflation in September rose at a faster-than-expected 7.81 percent.
HDFC Bank gained 0.5 percent, gaining for a third session in a row after the lender on Friday posted solid results as had been expected.
State Bank of India rose 0.6 percent.
Sugar stocks gained after government decided to allow exports under the open general licence scheme (OGL) for one more year and on hopes the country would lift some curbs on the industry.
Bajaj Hindusthan rose 0.8 percent, Balrampur Chini rose 4.5 percent while Shree Renuka Sugars rose 0.7 percent.
However, among stocks that fell, Infosys fell 1.2 percent, extending Friday's slide of 5.44 percent after the software services exporter once again disappointed investors hoping for a more robust growth outlook during its quarterly earnings announcement.