The Nifty rose to a 2-1/2 year high on Thursday, as lenders continued their rally on expectations of early rate cuts by the RBI, while four additions to the MSCI India index, including Wockhardt, also gained.
Expectations the Reserve Bank of India could cut interest rates as early as its next policy review on June 17 have risen sharply after data earlier this week showed inflation was easing and the RBI governor said it would be taken into account.
Indian shares have gained just over 4 percent so far this month, supported by strong buying from foreign investors.
Foreign investors were net buyers of 16.47 billion rupees of stocks on Wednesday, their single biggest day of buying since February 7.
Foreigners have been net buyers for 20 consecutive sessions, bringing in a net of $12.98 billion.
Analysts said they expected the rally to continue but there could be some profit-taking in the next few weeks.
"Global markets are doing extremely well, and we expect a good monsoon and improving corporate earnings to fuel further buying," said Alex Mathews, head of research at Geojit BNP Paribas.
The BSE Sensex closed up 0.17 percent, or 34.37 points, at 20,247.33.
The broader Nifty ended 0.38 percent higher, or 23.15 points, at 6169.90, its highest close since November, 2010.
All major sub-indices of the NSE, except technology and consumer goods, rose.
Infrastructure and property stocks also gained on expectations cheaper loans would spur capital spending and home buying.
Engineering and construction company Jaiprakash Associates Ltd
Meanwhile, four stocks added by index compiler MSCI to its India index also rose.
Oil India Ltd
Drugmaker Cipla Ltd's
However, IT and consumer stocks were hit as investors covered short positions on banks and took profits. Infosys Ltd
Shares of Bajaj Auto