The BSE Sensex rose more than 1 percent on Wednesday, with state-run Oil and Natural Gas Corp among the big gainers ahead of a government share sale in the company to raise at least $2.5 billion.
Traders said they expect heavy bidding for the offering in ONGC, which produces about 80 percent of India's oil output, at an auction on Thursday with foreign funds likely to lead the way.
ONGC, which has the second biggest market capitalisation after Reliance Industries, rose as much as 4.8 percent to 297 rupees, above the floor price of 290 set for the bidding.
The ONGC share sale has impacted market sentiment positively, said Arun Kejriwal, strategist at research firm KRIS. The floor price and with oil prices being where they are the expectations are that this share sale will be very successful.
By 0413 GMT, the main 30-share BSE index was up 1.24 percent at 17,951.14, with all of its components rising.
The benchmark has risen about 16 percent in 2012, with foreign funds buying more than $7 billion of shares.
Banks rose on expectations sluggish growth would pile pressure on the central bank to cut interest rates, traders said.
State Bank of India, the country's biggest lender, was up 1.9 percent, ICICI Bank (ICBK.NS) gained 1.1 percent and HDFC Bank (HDBK.NS) was up 0.8 percent.
Software services provider Hexaware Technologies (HEXT.NS) rose 4 percent after the Business Standard newspaper reported global companies and private equity players are in talks to pick up a majority stake in the company.
The 50-share NSE index was up 1.23 percent at 5,441.30. In the broader market, there were about 5 gainers for every loser on volume of 147.1 million shares.
Asian stocks hit a seven-month high while the euro and commodity currencies held their ground on Wednesday on hopes a fresh cash injection by the European Central Bank.
Elsewhere, the MSCI's measure of Asian markets other than Japan was up 1.3 percent.
STOCKS ON THE MOVE
* National Aluminium Co Ltd (NALU.NS) rose 2 percent after its chairman said the state-run metal producer is likely to finalise within a month a deal to set up an alumina refinery in the western state of Gujarat.
* Ramky Infrastructure (RAMK.NS) rose 2.7 percent after three sources told Reuters that a group firm, Ramky Enviro Engineers, plans to raise up to $125 million though an initial public offering.
TOP 3 BY VOLUME
* Lanco Infra (LAIN.NS) with 19.6 million shares
* GVK Power (GVKP.NS) with 13.9 million shares
* HDFC (HDFC.NS) with 10.8 million shares