Shares have started 2013 on a strong note as investors bet the Reserve Bank of India (RBI) will cut interest rates later this month, and as the resolution to the so-called U.S. "fiscal cliff" negotiations have benefitted global markets.
Foreign investors have also bought a net Rs 1,925 crore in equities this year, according to provisional exchange and regulatory data, after buying a net $24.37 billion last year.
However, analysts say 2013 would be a lot different from 2012, which saw a 25.7 per cent gain in the benchmark index, as budget problems in the U.S. are far from over, while at home the fiscal deficit poses a challenge for a meaningful reduction in interest rates.
"Market is in a wait-and-watch mode because U.S. problems are just postponed and not solved as discussion regarding debt limit will come back," said Jagannadham Thunuguntla, head of Research at SMC Investmensts and Advisors.
Earnings growth in 2013 will largely depend on the central bank's stance on rates and government policy measures, he added.
The benchmark BSE index rose 0.26 per cent, or 50.54 points, to end at 19,764.78, marking its highest close since January 6, 2011.
The broader NSE index rose 0.27 per cent, or 16.25 points, to end at 6,009.50, its highest close since January 6, 2011, and ending above the psychologically key level of 6,000 points.
Indian companies are due to start reporting earnings next week, with Infosys Ltd <INFY.NS> kicking off on January 11.
Hopes that software service exporters would report solid earnings were amplified by expectations an agreement on the U.S. fiscal cliff would improve demand from the key U.S. market.
Infosys gained 1.24 per cent, Tata Consultancy Services Ltd rose 1.4 per cent, while Wipro Ltd ended up 1 percent.
Jet Airways gained 4.7 per cent after a Indian government source told reporters the carrier was the front-runner for an investment from Etihad Airways.
Jet later confirmed it was in talks with Etihad, in the first confirmation of a potential deal by either side.
SpiceJet Ltd gained 1 per cent on hopes the carrier would also eventually attract foreign investment, but Kingfisher Airlines fell 2 per cent.
India's Dr. Reddy's Laboratories Ltd gained 2.4 per cent after the company said it has launched prostate drug finasteride tablets in the U.S.
Shares in gold loan providers rallied after a central bank report proposed increasing the loan-to-value, or LTV, ratio to 75 per cent from 60 per cent currently.
Muthoot Finance shares ended up 9.7 per cent, while Manappuram Finance closed 20 per cent higher at the maximun daily limit.
However, shares in Titan Industries, which makes gold jewellery, ended down 1.75 per cent on concerns over rising costs after the government said it will make importing gold costlier.
Shares in India's biggest domestic iron ore producer, state-run NMDC Ltd, fell 3.22 per cent after reducing prices for its most common grade by almost 6 per cent a tonne in January, an unexpected move that will help cut the costs of steel makers who rely on imports.
Copyright @ Thomson Reuters 2013