The BSE Sensex rose more than 1 percent on Thursday to its highest close in a month as stocks of blue chip companies such as ICICI Bank surged after exit polls predicted a strong showing for the key opposition party in state elections held recently.
Confirmation of the exit poll predictions of gains for the main opposition Bharatiya Janata Party (BJP) when results are out on Sunday would be seen as bolstering its chances of victory in general elections due by May, according to analysts.
The BJP is perceived by many investors as being more business-friendly, and investors say expectations of its wins could spark additional gains in Indian indices that are already near record highs.
Still, opinion and exit polls have a patchy track record in India. Most surveys forecast the wrong outcome in the 2004 general election.
"Exit poll led rise is good but would be sustainable only if U.S. jobs data leads to a delay in tapering of the Federal Reserve's stimulus program. At the end of the day, it will be more about where FII liquidity moves," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.
The BSE Sensex rose 1.2 percent, or 249.10 points, to end at 20,957.81, marking its highest close since November 5.
The index is not far from a record high of 21,321.53 hit on November 3.
The broader Nifty rose 1.3 percent, or 80.15 points, to end at 6,241.10, after earlier rising as much as 2.3 percent to hit 6,300.55, not far from a record 6,357.10 hit on January 8, 2010.
Blue chips rose, with gains led by lenders. ICICI Bank Ltd surged 6.5 percent, while Axis Bank Ltd rose 4.2 percent.
Among broader financial shares, IDFC Ltd rose 7 percent while Housing Development Finance Corporation Ltd ended 1.9 percent higher.
Meanwhile, Maruti Suzuki Ltd rose 3.7 percent while Bajaj Auto Ltd ended 0.4 percent higher after falling in the previous session following declines in November sales.
Adani Group stocks also rose as the conglomerate is based in Gujarat state, where the BJP's prime ministerial candidate Narendra Modi is chief minister.
Because of the location and perceptions of close ties between Adani and the BJP, shares of the Adani Group can at times move depending on the perceptions of electoral success for the party.
Adani Enterprises gained 1.1 percent, while Adani Ports and Special Economic Zone Ltd rose 3.9 percent and Adani Power Ltd ended 2.8 percent higher.
Larsen and Toubro Ltd ended 4.5 percent higher while Reliance Industries Ltd rose 1.8 percent.
Among stocks that fell, Jubilant Life Sciences Ltd said on Thursday it had received a warning from the U.S. Food and Drug Administration over manufacturing practices at one of its U.S. facilities, sending its shares the limit-down 10 percent.