Indices rose more than 1% to a six-week high on Wednesday, as oil producers and refiners surged after the government slashed windfall taxes on local crude sales and fuel exports.
The Nifty gained 1.2% to around 16,540 in early trade, while Sensex was up 1.3% at around 55,460. Both indices hit their highest since June 6.
India cut the windfall tax on oil producers and refiners and exempted gasoline from an export levy, less than a month after it imposed the two charges.
"The decision to cut windfall taxes is giving a trading bounce to the companies which were impacted," said Saurabh Jain, assistant vice-president, research, at SMC Global Securities, adding that the taxes would stay here and the government would review them frequently.
"People are afraid of this ad-hocism in public sector energy companies. They should use the bounce to square off positions." Jain said.
Reliance Industries jumped 4.3%, while Vedanta Ltd, Oil and Natural Gas Corp, and Oil India Ltd gained between 4.5% and 7.0%.
Nifty Energy gained 1.5%, while the beaten-down Nifty IT surged 1.8%. The IT index has declined about 28% so far this year as investors dumped growth stocks in favour of value stocks due to the high interest-rate environment.
Shares of Hindustan Unilever gained 1.2% after the consumer giant posted a quarterly profit that beat estimates.
Nifty components Wipro and IndusInd Bank will report their June-quarter earnings later in the day.
Meanwhile, the Indian rupee was trading almost flat after hitting a record low of 80.0650 in the previous session.