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The BSE Sensex and Nifty rose on Tuesday to their highest close in more than a month, with drugmakers getting a shot in the arm after Ranbaxy Laboratories reported its first profit in six quarters.
Lenders also extended recent gains on rising expectations the Reserve Bank of India would cut rates earlier than expected next year as slumping crude prices are expected to ease inflationary pressures.
Hopes for a loosening of monetary policy were also spurred after Finance Minister Arun Jaitley said he favoured a cut in interest rates, during an interview with a newspaper last week.
Also helping Tuesday's gains were higher global stocks ahead of the US Federal Reserve's two-day meet, where it is expected to reinforce that a softly-softly approach would be taken to raising rates.
"Interest rates, inflation, reform cycle... everything is in India's favour but it will come down to the Fed's language on rates for the near-term direction," said Nirakar Pradhan, chief investment officer at Future Generali India Life Insurance.
The Sensex rose 0.48 per cent, or 127.92 points, to end at 26,880.82.
The broader Nifty gained 0.45 per cent, or 35.90 points, to end at 8,027.60, above the psychologically important 8,000 level.
Both indexes rose for a sixth day in seven and marked their highest close since September 22.
Ranbaxy surged 5.9 per cent and was among the leading gainers on the index after swinging to a net profit in the July-September quarter, helped by the exclusive US launch of a generic version of Novartis AG's blood pressure pill Diovan.
Sun Pharmaceutical Industries, which is in the process of acquiring Ranbaxy, rose 4.2 per cent.
Cipla rose 2.9 per cent, while Aurobindo Pharma finished higher three per cent.
Lenders rose amid continued hopes of a rate cut and reforms in the sector. State Bank of India closed up 2.3 per cent, while ICICI Bank ended higher 1.8 per cent.
