The BSE Sensex rose on Friday on hopes of improving global risk appetite will boost foreign fund inflows, while an expected easing in inflation pressures could allow the RBI to unwind its tight monetary policy.
Gains in Asian shares, which rose to a one-month high after strong demand in Spanish and Italian debt sales helped ease euro zone debt worries, also bolstered investor confidence, traders said.
By 10:36 a.m. (0506 GMT), the benchmark 30-share BSE index was up 0.35 percent at 16,094.39 points, with 20 of its components in the green. The benchmark was one of the world's worst performers in 2011, falling almost a quarter.
Engineering and construction conglomerate Larsen & Toubro (LART.NS), truck and car maker Tata Motors (TAMO.NS) and ICICI Bank (ICBK.NS) were among the gainers as buyers chased bargains.
Larsen & Toubro was up 2.2 percent, Tata Motors rose 3 percent and ICICI gained about 1 percent.
We believe corporate results will not be bad because advance tax payments were quite satisfactory, said R.K. Gupta, managing director at Taurus Mutual Fund.
He said a bigger-than-expected rebound in November industrial output, up 5.9 percent versus a 4.7 percent contraction the month before, indicated the outlook was improving.
Headline inflation for December probably fell to 7.50 percent, economists polled by Reuters said, helped by a drop in food prices, after remaining above 9 percent for a year. The data is due on Monday.
Deven Choksey, chief executive of brokerage K R Choksey, said easing pressure on prices would pave the way for the central bank to begin rolling back its tight policy.
The Reserve Bank of India, which raised interest rates 13 times between early 2010 and last October, is scheduled to review policy on January 24.
Wind turbine maker Suzlon Energy (SUZL.NS) rose nearly 5 percent after it won a 20.5 megawatt order from the UK.
The 50-share NSE index was up 0.39 percent at 4,850.25 points.
In the broader market, gainers overwhelmed losers 1,013 to 314 on total volume of about 181.5 million shares.
STOCKS ON THE MOVE
* GVK Power and Infrastructure Ltd (GVKP.NS) rose 3.6 percent after the company said its unit signed a road project with the National Highways Authority of India. The project has a 30-year concession period.
* Diamond Power Infrastructure Ltd (DIAC.NS) rallied more than 7 percent after it said it received an order worth 483 million rupees for supply of power transformers.
MAIN TOP THREE BY VOLUME
* Suzlon Energy on 9.38 million shares
* Jaiprakash Associates (JAIA.NS) on 7.9 million shares
* Lanco Infra (LAIN.NS) on 6.67 million shares