MUMBAI The BSE Sensex rose to a 15-month peak on Thursday, while the Nifty hit a 17-month high, after the government's reform proposals for the insurance and pension sectors sparked gains in financial stocks such as ICICI Bank.
The government's push is raising hopes for more action, especially in further lowering its subsidies and tackling bigger measures such as a reform in the goods and services tax, after already announcing big bang reforms last month.
Investors were also encouraged after India's services sector expanded at its fastest pace in seven months as a spurt in new business encouraged firms to hire more staff, according to a HSBC survey on Thursday, suggesting the worst of the economic slump may be over.
"One may expect record highs by March next year on back of reform measures as investment cycle picks up," said G. Chokkalingam, Chief Investment Officer of Centrum Wealth Management.
Both of India's main indexes surpassed key psychological levels to end at their highest since last year.
The BSE Sensex rose 1.0 percent at 19,058.15 to its highest close since July 7, 2011.
The 50-share Nifty gained 0.98 percent to 5,787.60, its highest close since April 27, 2011.
Financial firms rallied after the cabinet was set to approve later in the day bills that would raise the cap on foreign direct investment in insurance firms and open the pension sector to foreign investors.
Although some analysts expressed doubts about whether both proposals would win parliamentary approval, shares gained nonetheless.
Financial companies with insurance units rose. Reliance Capital (RLCP.NS) rose 1.9 percent, with shares having surged 41.5 percent since September.
Lenders with pension funds units also rose, with State Bank of India up 2.12 percent and ICICI Bank (ICBK.NS) up 2.9 percent.
Brokerages also rallied on hopes for improved stock trading volumes. Motilal Oswal (MOFS.NS) gained 2.4 percent, while Edelweiss Capital (EDEL.NS) surged 10.3 percent after earlier rising nearly 15 percent in intraday trade.
Oil marketing companies extended gains as brent futures prices are falling at a time when the rupee is strengthening, lowering costs for importing crude.
Hindustan Petroleum Corp (HPCL.NS) rose 3.2 percent, while Bharat Petroleum Corp (BPCL.NS) gained 3.4 percent.
Cement companies extended a recent rally on hopes they would post robust July-Sept quarterly earnings due to rising shipments and lower raw material costs.
ACC (ACC.NS) rose 1.15 percent after hitting life high of 1,545.35 rupees intraday, while Ambuja Cement (ABUJ.NS) settled 1.5 percent higher after making an all-time high at 223 rupees.
However, Indian drug makers extended recent falls as investors continued to switch out of previously outperforming defensive sectors into cyclical or high-beta stocks.
Lupin Ltd (LUPN.NS) fell 3.1 percent, while Cipla Ltd (CIPL.NS) fell 3.9 percent.
Auto shares continued to reel after posting lower than expected vehicle sales for the month of September. Mahindra & Mahindra (MAHM.NS) fell 1.3 percent.
MphasiS (MBFL.NS) fell 3.8 percent after shares of main stakeholder Hewlett-Packard Co (HPQ.N) plunged to a nine-year low on Wednesday after warning of an unexpectedly steep earnings slide in 2013.
(Additional reporting by Abhishek Vishnoi; Editing by Rafael Nam)