The BSE Sensex rose for a second consecutive session on Wednesday, marking its highest close in almost two weeks, led by IT stocks such as Infosys after recent losses were seen as overdone and on hopes a resolution to the "U.S. cliff" standoff would improve the outlook for the sector.
Shares in non-banking financial companies such as Shriram Transport Finance also rose after a bill laying the groundwork for the issuance of new bank licenses was approved by parliament.
Analysts said with government reform-driven gains likely to subside as the winter session of parliament ends on Thursday, global risk factors may become more important for domestic markets.
Global shares hit 17-month highs and the euro surged on Wednesday on hopes that U.S. politicians will reach a budget deal and that Japan would implement further monetary stimulus.
"Markets would now pick an excuse from what is happening globally like the U.S. fiscal cliff issue, otherwise there is scope of correction," said Paras Adenwala, managing director at Capital Portfolio Advisors.
0.57 percent, or 111.25 points, to end at 19,476, marking its highest close in almost two weeks.
The broader Nifty rose 0.56 percent, or 32.80 points, to end at 5,929.60, closing above the psychologically important 5,900 level.
Shares in Tata Consultancy Services gained 1.8 percent as a U.S. budget deal would improve the outlook for a key market for software services exporters.
TCS shares also rose after Morgan Stanley upgraded the stock to 'overweight' from 'equal-weight', noting IT spending could be stable in fiscal year 2013 and revenues would improve in fiscal 2014.
Technology shares also rose after recent losses were seen as overdone. Infosys ended 1.1 percent higher after falling 6.8 percent in December, as of Tuesday's close
Non-banking financial companies rose on hopes diversifying into banking would improve their earnings potential. Shriram Transport Finance gained 0.8 percent, after earlier hitting its highest level since May 25, 2011.
Smaller private-sector banks also rose, with Federal Bank ending up 6.1 percent at an all-time closing high of 527.80 rupees, on hopes the banking amendment bill will spark consolidation in the sector.
Traders said NBFCs could look to purchase smaller lenders to expand their footprint in the sector after getting banking licenses.
Among other smaller private banks, Dhanlaxmi Bank gained 3 percent, while Karnataka Bank ended 5.3 percent up.
Steel companies gained after China said it will scrap a 40 percent export duty on metallurgical coke, a steel-making raw material, from next year.
The move is expected to weigh on prices of metallurgical coke, giving steel firms access to cheaper imports from China.
Tata Steel gained 2.4 percent while Jindal Steel and Power ended 2.5 percent higher.
However, among stocks that fell, banks such as Oriental Bank of Commerce lost 2.5 percent, while Dena Bank ended down 1.6 percent on profit booking.
ICICI Bank fell 0.9 percent after earlier hitting its highest level since December 2010, while Axis Bank ended 1.4 percent down as recent outperformance was seen overdone.