Shares closed near a seven-week high on Thursday, led by gains in metals and auto stocks, while strong results from IndusInd Bank lifted private lenders.
Nifty and Sensex rose 0.51% each to close at 16,605.25 and 55,681.95, respectively. Both the indices closed at their highest since early June.
"The return of foreign investors to domestic equity markets in the last few sessions, coupled with receding commodity prices and hopes the US Fed may not go for aggressive rate hikes in its next meeting have somewhat tempered fears," said Shrikant Chouhan, head of equity research (retail), Kotak Securities.
Nifty has risen about 5% so far this month. The Nifty Bank and Nifty Auto are up 8% and 7.4%, respectively.
"The chip crisis is easing and raw material costs have come down for automobile companies, and they have passed on the hikes to customers. The market is expecting better margins," said AK Prabhakar, head of research, IDBI Capital.
IndusInd Bank jumped 7.8% after it reported a surge in first-quarter net profit on Wednesday on the back of a drop in provisions and growth in net interest income.
Wipro cut early losses to trade up 0.5% on expectations of strong IT services revenue growth in the second quarter after its June-quarter profit fell about 21%.
Tata Communications surged 10% after the company posted a jump in quarterly profit.
India's central bank is prepared to sell a sixth of its foreign exchange reserves to defend the rupee against a rapid depreciation after it plumbed record lows in recent weeks, a senior source aware of the central bank's thinking told Reuters.