The BSE Sensex and Nifty gained on Wednesday for the sixth time in seven sessions on hopes the government will muster a majority in parliament on a crucial vote to allow foreign direct investment in multi-brand retail later in the day.
Shares in organised retailers such as Pantaloon Retail India Ltd
and Shoppers Stop rallied on hopes of a favourable vote for the government.
Traders said optimism ahead of the parliament vote, that will pay the way for more reforms, have triggered a rally in mid-cap and small cap indexes and is a sign of structural bullishness in the market.
"Markets remained cautiously optimistic before the eve of the event in the Parliament," said Kaushik Dani, a fund manager at Peerless Mutual Fund.
"Sentimentally, a lot of things are leaning towards what is going to happen today."
The Sensex gained 0.23 percent, or 43.74 points, to end at 19,391.86, its highest close since April 27, 2011.
The broader Nifty rose 0.19 percent, or 11.25 points, to end at 5,900.50 for the first time since April 13 2011, clearing the psychologically important 5,900 level.
Shoppers stop rose 7.53 percent, closing at 464.70, its highest since July 25, 2011, while Pantaloon Retail
gained 3.26 percent to end at 237.65, its highest close since September 22, 2011.
State Bank of India rose 1.44 percent after a senior executive told reporters that the Indian government is looking to infuse 40 billion rupees in the bank.
Other state-run banks that gained were Punjab National Bank
, which rose 3.42 percent and Bank of India , which ended up 2.3 percent.
Tata Motors rose 1.25 percent, buoyed by a Morgan Stanley report which maintained its 'overweight' rating and said it is optimistic of a strong rebound in sales in the January to March quarter.
Property developer DLF Ltd jumped 4.5 percent, posting its biggest gains since October 4 on hopes of a strong pick-up in launches in the second half of FY13, dealers said.
All major tyre makers gained. Apollo Tyres rose 2.25 percent, Ceat Tyres added 2.6 percent, MRF was up 4.13 percent, while JK Tyres & Industries was 4.4 percent higher.
The gains tracked a fall in the price of rubber, a key raw material which constitutes nearly 40 percent of the production cost of tyres. Rubber futures have fallen 6.4 percent in five previous trading sessions.
However, technology shares fell on fears that Cognizant Technology Solutions Corp may lower its revenue growth guidance for 2013 based on compensation targets for top executives.
Sentiment was also dampened by Cowen's downgrade of Infosys Ltd to 'neutral' on Tuesday due to fears of a protracted revenue growth recovery.
Infosys ended down 2.25 percent, Wipro Ltd fell 1.8 percent and HCL Technology dropped 1.4 percent.
(Editing by Prateek Chatterjee)