The announcement led to a healthy buying spree for the second consecutive day in oil and gas and public sector undertakings (PSUs), which includes all three state-owned OMCs.
The BSE Sensex, which opened at 20,038.67 points, was at 20,093.89 points around 12 p.m. -- up 129.86 points or 0.65 percent from its previous close at 19,964.03 points.
The BSE Sensex touched an intra-day high of 20,126.55 points and a low of 20,037.23 points.
The BSE midcap index was up 30.76 points, while the smallcap index was higher by 9.05 points.
The wider 50-scrip S&P CNX Nifty of the National Stock Exchange (NSE) was trading -- down 37.70 points or 0.62 percent at 6,076.90 points.
Petroleum and Natural Gas Minister Veerappa Moily Thursday said the cabinet in a meeting decided to allow the OMCs to fix own diesel prices. The move is expected to lessen government's subsidies bill, thus rein in the fiscal deficit.
According to ministry officials, OMCs could revise prices by an amount less than Rs.1 per litre at one go.
The move comes nearly three years after petrol prices were similarly freed in June 2010.
Major indices like oil and gas and public sector undertakings (PSU) were gainers Friday, with oil and gas index being higher by 294.58 points, followed by PSU index up 243.01 points and bank index up 123.06 points.
Scrips of the three OMCs -- Indian Oil, Bharat Petroleum and Hindustan Petroleum rallied. Indian oils, scrip grew by 11.11 percent in the intra-day trade at Rs.351.00, while that of Bharat Petroleum increased by 9.56 percent at Rs.433.75 and Hindustan Petroleum, up 8.81 percent at Rs.376.05.
In terms of losers, information technology (IT) index was down 40.25 points, while the automobile index was down 35.41 points and technology, entertainment and media (TECk) index was lower by 29.04 points.
Among other Asian markets, Japan's Nikkei was up 2.86 percent, Hong Kong's Hang Seng was higher by 0.89 percent and China's Shanghai Composite Index was higher by 1.06 percent.
