Shares advanced for a second straight session on Wednesday as concerns over a banking crisis receded further, while investors braced for a crucial interest rate decision by the U.S. Federal Reserve.
The Nifty 50 index closed 0.26% higher at 17,151.90, while the S&P BSE Sensex rose 0.24% to 58,214.59.
Nine of the 13 major sectoral indexes advanced with public sector banks and pharma stocks rising 0.83% and 1.04%, respectively.
The rise follows an uptick in global equities after U.S. Treasury Secretary Janet Yellen vowed to protect depositors in smaller banks in an effort to calm nerves.
The Swiss government-backed takeover of Credit Suisse by UBS over the weekend eased concerns over financial stability, for the time being.
Global markets now await the Fed's monetary policy decision due later in the day. The odds of a 25-basis-point (bps) hike are 89.3%.
Most analysts expect the Fed to hike rate by 25 bps to combat inflation, but Goldman Sachs said a pause would be "warranted".
"The recent turmoil in banking is an unintended consequence of the Fed's steep rate hikes," said Deven Choksey, managing director at KRChoksey Holdings.
Information technology (IT) companies, which earn a significant share of their revenue from the United States and Europe, could see short-term pressure due to banking stress, analysts said.
HCLTech closed lower after flagging a slowdown in European bookings and pressure on discretionary tech spending at its U.S. investor meeting.
"If banking crisis spreads, it will hurt IT firms, which have nearly 30% exposure to Banking Financial Services and Insurance segment" said Narendra Solanki, head of equity research, Anand Rathi Shares & Stockbrokers.
Bajaj Finance rose 2.17% after Morgan Stanley raised earnings estimates for financial year 2023 by 2%, citing higher loan growth and net interest margin.
Sobha tumbled nearly 13% after the company reported income tax department conducted raids at its offices.