The BSE Sensex touched a four-month high on Tuesday as rate-sensitive companies rallied on hopes the Reserve Bank of India (RBI) will be pressured into cutting interest rates after the finance minister said high borrowing costs were burdening consumers.
The session marked the second consecutive gain of over 1 percent for domestic indexes after the comments from newly-appointed P. Chidambaram on Monday boosted stocks that would benefit from lower rates such as State Bank of India .
Software service exporters such as Infosys also rallied after U.S. rival Cognizant Technology Solutions raised its adjusted full-year profit forecast.
Chidambaram's promise for fiscal reforms also helped sentiment, easing some of the growing worries the government would delay action, despite facing slowing economic growth and a worsening global risk environment.
However, analyst kept a dose of skepticism about whether the stock gains marked a true turnaround.
"Last 2 days have been driven by global cues and Chidambaram's comments, but the rally have been a surprise to many," said Vivek Mahajan, head of research at Aditya Birla Money.
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"There is some consolidation in offing now. Maybe Nifty would get support at 5,150, due to running fiscal deficit worries and scanty monsoon rains,".
The 30-share BSE index rose 1.08 percent to 17,601.78 points after earlier touching its highest intraday level since April 3.
The 50-share NSE index gained 1.03 percent to end at 5,336.70 points.
Interest-rate sensitive stocks gained on hopes the government would at least push the RBI to use its monetary lever.
Auto makers gained as lower rates would bring down financing costs when purchasing new vehicles. Tata Motors rose 4.3 percent, while Bajaj Auto rose 1.3 percent.
Bank stocks benefited, helped as well after P. Chidambaram said the government would shortly announce measures tackling investments into mutual funds.
State Bank of India rose 2.1 percent, while ICICI Bank added 2.1 percent.
DLF gained 2.8 percent, a day after India's biggest property company said April-June net profit fell 18 percent because of high interest rates and slowing home sales.
Among other gainers, IT stocks gained after Cognizant's upbeat outlook provided some relief after domestic rivals such as Infosys Ltd had forecast weaker sales due to slowing global outsourcing spending.
Tata Consultancy Services gained 2.8 percent, while Infosys rose 1.3 percent.
Jet Airways rose 2.6 percent after Citigroup and CLSA upgraded the carrier to "buy" from the equivalent of sell ratings citing expectations for a turnaround in profits.
Rival Spicejet surged 11.8 percent.