Banks, auto makers and property developers gain after the finance minister's comments about interest rates being high spark hopes the government will exert pressure on the RBI to ease monetary policy.
The NSE's banking index gained 0.8 percent for a second day of advances: ICICI Bank rallied 1.5 percent, while State Bank of India has risen 1.4 percent.
Bank stocks also benefit after P Chidambaram said the government would shortly announce measures tackling investments into mutual funds.
Tata Motors is up3.3 percent, while Bajaj Auto has advanced 1.8 percent as lower interest rates would reduce financing costs for vehicle purchases.
DLF gained 1.5 percent, a day after India's biggest property company said April-June net profit fell 18 percent because of high interest rates and slowing home sales.