mumbai 09 13, 2012, 17:50 IST
The BSE Sensex rose just enough to mark a seventh consecutive gaining session and a seven-month closing high, as hopes for government reforms boosted banks, while technology shares gained on hopes for stimulus measures from the Federal Reserve.
A special cabinet panel is due to meet later in the evening, and may discuss raising prices of heavily subsidised fuels, while the issue of opening up the aviation sector for foreign direct investment will be discussed at a separate weekly cabinet meeting.
Policy reforms are seen as critical for a country facing ratings downgrades into sub-investment grade, due to rising fiscal imbalances and slowing growth.
Investors are also on hold for the Federal Reserve's meeting later in the day amid high hopes for a new asset-purchasing programme, an event that could boost demand for risk assets such as those in emerging markets.
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"Now the market is expecting some sort of stimulus coming for the U.S tonight," said Mehraboon Irani, principal and head of the private client group at Nirmal Bang Securities.
"If the government don't act on fiscal measures there is a distinct possibility of India underperforming," he added, noting markets were "right now looking very anxiously to diesel price hike."
The BSE Sensex rose 0.12 percent to 18,021.16 points, marking its highest close since February 23 and its longest winning streak since March 2011.
The 50-share Nifty rose 0.08 percent.
Banks were among the day's leading gainers on hopes that fiscal reforms would give Reserve Bank of India room to cut interest rates given the central bank has pushed the government to shore up its finances.
ICICI Bank rose 1.1 percent, while State Bank of India rose 0.4 percent
The RBI sets its policy review on Monday, although traders will first eye inflation data due out on Friday.
Hopes for Fed action bolstered exporters with big exposure to the U.S. economy. Infosys rose 0.6 percent while Tata Consultancy Services rose 0.2 percent.
Sectors that would directly benefit from government action also rose.
SpiceJet rose 4.6 percent after surging 7.1 percent on Wednesday on hopes the government would change rules that currently bar foreign airlines from buying stakes in domestic carriers.
Hopes were further stoked after a SpiceJet spokeswoman said the low cost carrier was in "very preliminary" discussions with various Gulf carriers for possible investments, but any decision would only come after the government relaxes rules.
Beleaguered Kingfisher Airlines shares gained 5.8 percent after jumping 8 percent on Wednesday.
Among oil companies, which would benefit from a hike in diesel prices, Hindustan Petroleum Corp rose 0.6 percent, while Bharat Petroleum Corp rose 2.1 percent.
Some state-owned companies also rose on media reports the cabinet will meet on Friday to consider selling some of the government's stake in five companies.
NALCO shares gained 1.3 percent, while Hindustan Copper gained 1.2 percent, and Neyveli Lignite Corp rose 1.8 percent.
Among other gainers, Phoenix Mills rose 0.8 percent after Citigroup and UBS say the property developer has attracted good orders for its premium residential project in Bangalore.
Glenmark Pharmaceuticals gained 0.6 percent to 434.75 rupees after J.P.Morgan raised its price target on the stock to 515 rupees, citing a "strong" growth outlook for its core markets of India and the United States.
However, retailers fell after India's commerce minister said opening up multi-brand retail to foreign direct investment would not be in the cabinet's agenda meeting on Friday.
Pantaloon Retail fell 2.4 percent reflecting disappointment, while Shoppers Stop lost 0.6 percent.
Shares in Lupin dropped 3.3 percent after analysts highlighted in reports that a U.S. district court in New Jersey has ruled as valid the patent held by Johnson & Johnson on oral contraceptive drug Ortho Tri-Cyclen Lo.
Lupin declined to comment.