The Sensex edged higher for a second consecutive session on Tuesday, as continued hopes for rate cuts boosted banks, while infrastructure shares such as Larsen & Toubro rose on optimism for a revival in stalled projects.
Broader gains in indexes were partly capped as telecom stocks such as Bharti Airtel fell ahead of a government meeting on Tuesday to tackle the base price for an upcoming 2G airwave auction.
However, shares are vulnerable to more volatility, analysts warned, especially ahead of an emergency meeting of G7 countries finance chiefs about the euro zone debt crisis later in the day.
Meanwhile, despite rising optimism the Reserve Bank of India (RBI) will cut interest rates, those expectations could easily be knocked back depending on inflation and industrial output data due out next week.
"Before the G7 meeting the market is in a wait and watch mode," Jagannadham Thunuguntla, head of research at SMC Investments and Advisors Limited.
"Post that, market will not recover much because ultimately only one thing can drive the market, which is growth that is missing."
The Sensex rose 0.2 per cent, or 32.24 points higher at 16,020.64 points on, marking another session of mild gains.
The Nifty rose 0.31 per cent to 4,863.30 points.
Expectations for interest rate cuts are rising, as falling oil prices as well as weak growth in India are seen giving RBI room to cut interest rates.
A Reuters poll on Tuesday showed 15 out of 20 analysts expect a rate cut at RBI's meeting on June 18.
These hopes boosted banks for a second session, sending the NSE banking index up 1.05 per cent, for a combined gain of 2.1 per cent so far this week.
Top lender State Bank of India rose 1.8 per cent, while HDFC Bank gained 1.2 per cent.
Infrastructure stocks gained on newspaper reports prime minister Manmohan Singh had called for a meeting of various government officials tomorrow to discuss ways to kickstart stalled infrastructure projects.
Engineering and infrastructure firm Larsen and Toubro rose 3.2 per cent, while Bharat Heavy Electrical Ltd added 1.82 per cent.
However, among decliners, Bharti Airtel shares fell 2.5 per cent, as the overhang continued from the pricing for an upcoming 2G airwave auction ahead of a government meeting on the subject.
The auction follows a Supreme Court order to revoke all permits awarded in the scandal-tainted 2008 sale.
Reliance Communications fell 1.12 per cent, while Idea Cellular shares ended down 0.46 per cent.
Shares in MphasiS fell 5.7 per cent, but that was after quickly paring an earlier fall of as much as 13.3 per cent, after it denied entering into any transaction that would require it to leverage its cash position and incur more debt.
The software and back office provider had earlier tumbled on market talk it would have to incur costs of Rs 3,500 crore to implement a government contract to run the software for some ATM machines across several states.
