Markets settled higher on Wednesday after the Reserve Bank of India delivered an expected 25 basis points rate hike, while Adani Group shares recouped losses for a second straight day.
The Nifty 50 index was up 0.85% at 17,871.70 at close, their highest in two weeks, while the S&P BSE Sensex finished 0.63% higher to 60,663.79. Both indexes snapped two straight sessions of losses.
The central bank raised the key policy repo rate in line with economists' expectations, but surprised markets by leaving the door open to more tightening, saying core inflation remained high.
A Reuters poll had showed the RBI would likely raise rates by 25 bps to mark the final increase in its current tightening cycle, before taking a pause for the rest of the year.
"Nifty is back in the range that it was for sometime before the Adani fiasco, and we expect a range-bound market for the next few days," said Samrat Dasgupta, chief executive officer of Esquire Capital Investment Advisors.
The Nifty 50 traded in a range between 17,700 and 18,200 in January before a report from US short-seller Hindenburg on the Adani Group stocks triggered a sell-off.
The majority of Adani Group stocks surged for a second straight day, with the flagship Adani Enterprises and a top gainer in the metal index, closing 20% higher.
Financial stocks did not gain as much on the central bank's decision, as an indication of more future rate hikes could hurt loan demand, analysts said.
An overnight rally in tech-heavy Nasdaq helped domestic IT stocks advance 1.53%. Metal stocks, which had fallen in the last five sessions, bounced back with an over 3% gain.