The BSE Sensex gained for a second consecutive session after the Reserve Bank of India (RBI) lowered minimum bond holding requirements for lenders to spur investment, sending blue-chips such as mortgage lender HDFC and Tata Motors higher.
The RBI kept its key policy repo rate unchanged on Tuesday as widely expected, but cut the statutory liquidity ratio by half a percentage point to 22.0 per cent of deposits, effective from August 9.
Sentiment was got a boost after overseas investors, who were supporting a 22.9 per cent rally in the broader Nifty so far this year, turned buyers on Monday after selling $494.7 million worth of Indian shares in the previous three sessions.
Foreign investors bought Indian shares worth $61.10 million on Monday, exchange and regulatory data showed.
"RBI policy was quite pragmatic one and is anticipating a growth revival. The focus is shifting from just inflation management to facilitate revival of growth in the economy. And the market has taken it in its full-sense," said Deven Choksey, managing director at KR Choksey Securities.
The BSE Sensex gained 0.72 per cent to 25,908.01 points, while the Nifty added 0.82 per cent to 7,746.55 points.
Hopes that increased lending after the RBI measures would help spur investment lifted some blue-chips.
Auto stocks were among the leading gainers. Mahindra and Mahindra Ltd gained 3.8 per cent, while Bajaj Auto Ltd closed up 3.2 per cent and Tata Motors Ltd added 2.3 per cent.
Real-estate stocks also gained. DLF Ltd was up 2.2 per cent while Unitech Ltd added 6.6 per cent.
Lenders also rose, with State Bank of India adding 0.5 per cent, Bank of Baroda ending up 1.2 per cent and Union Bank of India closing 1.9 per cent higher.
Among other gainers, Cummins India ended 7.04 per cent higher as analysts said the company management has raised revenue guidance.
However, shares in Tata Communications Ltd closed down 2.4 per cent after the company reported a net loss in the June quarter.
Among other decliners, Petronet LNG fell 4.1 per cent, declining for the second straight day on broker downgrades after June-quarter earnings lagged some analysts' estimates.
Copyright Thomson Reuters 2014
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