The BSE Sensex advanced for the third time in four days on Thursday, led by gains in state-run oil companies after the government allowed them to set diesel prices, despite uncertainty about the specifics of the announcement.
The government on Thursday paved the way for state-run oil marketing companies to raise diesel prices in line with increases in global crude oil prices, a move that could help the government reduce its vast subsidy bill.
India's No.4 software services provider HCL Technologies Ltd joined Infosys Ltd and Tata Consultancy in beating profit estimates, sending its shares up as much as 7 percent and adding pressure on Wipro Ltd to deliver strong results on Friday.
Analysts say fiscal consolidation alongside reversal of rate cycle are equally important for the market to move higher from current levels.
"Increase in diesel prices is the first step towards coming out of the twin deficit problem, so it should ensure better times for the market ahead," said Deven Choksey, managing director at KR Choksey Securities.
The benchmark BSE Sensex rose 0.74 percent, or 146.40 points, to end at 19,964.03.
The broader Nifty rose 0.62 percent, or 37.35 points, to end at 6039.20, closing above the psychologically important 6,000 level for the fourth day.
Shares in state-run oil marketing companies surged after the government authorized them to set diesel prices.
Hindustan Petroleum Corp gained 5.4 percent, while Bharat Petroleum Corp gained 3.6 percent, and Indian Oil Corp rises 6.4 up percent.
Oil and Natural Gas Corp also rose 3.5 percent, while Reliance Industries rose 3.3 percent, marking a second day of gains, ahead of its earnings on Friday.
Technology shares gained after HCL Technologies beat estimates with a 68.4 percent jump in quarterly profit.
Investors are betting that a good showing by the top companies in India's $100 billion-a-year outsourcing industry is an early sign of a broader pickup in IT spending. Reflecting that optimism, the country's IT services subindex has surged more than 13 percent in almost a week.
HCL Technologies gained 4.5 percent after hitting its highest since February 2000. Infosys Ltd rose 1.1 percent while Tata Consultancy Services Ltd ended 1.06 percent higher.
Wipro gained 2.6 percent after UBS raised its ratings to 'buy' from 'sell', saying revenue momentum will start picking up from the October-December quarter.
Reliance Communications rose 2.6 percent, while Tata Teleservices Maharashtra ended 2 percent higher, after India approved a 50 percent cut in the auction reserve price for airwaves used by phone carriers on the CDMA platform.
Asian Paints Ltd rose 1.3 percent after Morgan Stanley initiated coverage of with an "overweight" rating and a target price of 5,220 rupees.
However, among stocks that fell, Bajaj Auto dropped 1.1 percent after Deutsche Bank downgraded the stock to 'hold' from 'buy', saying current valuations are already factored in the company's "strong" margin performance but do not account for the risks in an "uncertain" demand environment.
UBS remained bullish on Indian shares, but said returns in 2013 would be front-loaded as the first half would be supported by an easing rate cycle and on expectations of a "market-friendly" budget for FY14.