The BSE Sensex recovered on Tuesday from two previous sessions of losses as dented stocks such as Infosys rose, while private banks such as ICICI Bank gained on hopes their quarterly earnings would prove resilient.
After India's slew of reform announcements - which were welcomed by US Treasury Secretary Tim Geithner in a visit to New Delhi on Tuesday -investors are focusing on the approaching earnings reporting season.
Investors are also looking ahead to industrial output data on Friday, with a Reuters survey of economists predicting a modest growth of 1.1 per cent annually in August after barely growing at all in July.
India's economy has slowed sharply, spurring the International Monetary Fund to sharply lower its 2012 economic growth forecasts for the country to 4.9 per cent from 6.1 per cent.
"Some rub-off is expected from the earnings season," said Daljeet Singh Kohli, head of research at IndiaNivesh Securities. "Broader view is one should be a buyer on dips. Whatever confidence-building measures have been taken are sufficient to bring markets higher, and on top of that we have enough liquidity both internationally and domestically."
The BSE Sensex rose 0.45 per cent, or 84.38 points, to end at 18,793.36 points after a fall of 1.8 per cent in the previous two sessions. The 50-share Nifty rose 0.5 per cent, or 28.6 points, to end at 5,704.60 points.
Infosys Ltd shares rose 1.9 per cent after dropping 4.7 per cent over the previous four sessions.
The software service exporter is expected to post on Friday a 24.9 per cent rise in profit in the quarter ended September 30 to Rs 2,380 crore, according to Thomson Reuters data.
Private banks rose on expectations their July-September earnings will prove more resilient than their public sector counterparts.
ICICI Bank rose 1.1 per cent, while HDFC Bank gained 0.8 per cent.
United Spirits Ltd gained 6.7 per cent on rising hopes the Indian spirits maker will clinch a deal to sell a stake to Diageo.
Indian newspapers reported billionaire Vijay Mallya, who controls United Spirits, and rival liquor tycoon Kishore Rajaram Chhabria had reached a truce on their long-standing legal dispute over ownership of whiskey brand Officer's Choice, which was seen facilitating a potential deal with Diageo.
Maruti Suzuki shares gained 0.5 per cent after Citigroup said the automobile maker was seeing signs of improving demand in the festival season, attributing the information to its recent conversations with the auto maker's management.
However, some other Indian auto shares fell after the Finance Ministry cut the rebates paid on certain types of exports.
Shares in Bajaj Auto fell 0.4 per cent, TVS Motors fell 2.9 per cent and Ashok Leyland lost 0.6 per cent.
Telecom stocks fell as operators face a total surcharge of at least $5.2 billion to continue using the airwaves, after a ministerial panel yesterday recommended the sector be charged for existing second-generation holdings based on the price at an upcoming auction. Idea Cellular shares fell 3.2 per cent, while Bharti Airtel fell 1.9 per cent.