The BSE Sensex rose on Monday, marking its highest close in nearly one month, as technology stocks continued to make record highs after Infosys cheered the sector on Friday by raising the lower end of its fiscal 2014 revenue outlook.
The technology sector-led rise on Monday trumped data showing India's headline inflation accelerated to a seven-month high of 6.46 percent in September, driven by higher food prices.
Accelerating inflation is raising expectations that the Reserve Bank of India will raise interest rates by 25 basis points on October 29, which would mark its second consecutive hike in as many months.
Uncertainty about the monetary policy could constrain further gains in shares, some analysts said, while any disappointment in earnings could also spark a pullback.
"Markets are not looking cheap anymore and, therefore, disappointment on the part of September-quarter corporate earnings may lead to a correction," said Nilesh Shetty, associate fund manager at Quantum Asset Management Company.
The Sensex rose 0.38 percent, or 78.95 points, to end at 20,607.54, marking its highest close since September 19.
The Nifty rose 0.27 percent, or 16.50 points, to end at 6,112.70, rising for a fifth consecutive day.
Infosys ended 1.5 percent higher, marking its highest close since January 2011, as investors continued cheering the change to the lower end of its revenue guidance.
The stock also overtook Reliance Industries as the second-biggest weighting in the benchmark index. Reliance gained 0.8 percent ahead of its September-quarter results later in the day.
Tata Consultancy Services ended up 4.3 percent after marking its all-time high of 2,225 rupees.
Tech Mahindra ended 0.6 percent higher after making its record high of 1,585.50 rupees after the Reserve Bank of India late on Friday raised the company's foreign ownership limit to 45 percent from 35 percent for equity shares and convertible debt.
HDFC Bank rose 0.9 percent a day ahead of its July-September earnings.
Shares in small and mid-sized Indian banks rallied on media reports quoting RBI Governor Raghuram Rajan saying the central bank will unveil over the next few weeks reforms in the banking sector that would allow foreign lenders to take over smaller domestic ones.
Tata Motors ended 1.3 percent higher after making its all-time high of 393.30 rupees following the company's statement that its group global wholesales stood at 87,316 vehicles in September.
However, among stocks that fell, Wockhardt Ltd dropped 5 percent to its daily lower limit after Britain's drug authorities revoked their approval for one of its key plants.
IDFC also ended 1.4 percent lower after Deutsche Bank downgraded the stock to "hold" from "buy" and reduced its target price to 110 rupees from 150 rupees citing challenging operating environment.