After shedding some gains from the morning trade, the Sensex closed at 18517, 57 points up and the Nifty closed at 5628, up 13 points after the first day of the Parliament's winter session which will take up a slew of reform bills.
Some banking stocks gained on hopes of parliament passing bills to liberalise the insurance, pension and banking sectors. State Bank of India closed up 2 percent and Axis Bank closed up 1.59 percent.
According to a CNBC-TV18 exclusive, the finance ministry is open to reduce the FDI cap to 26 percent in order to ensure the passage of the Insurance Bill which will provide for general insurance companies to raise capital from the market.
The government's move to allow state-run Life Insurance Corp (LIC) to triple the maximum stake it can hold in other companies to 30 percent will also help banks, dealers said.
While the government is on a disinvestment drive to meet its fiscal deficit target, rating agency Moody's said Indian economy is expected to have grown by little more than 5.5 percent in last quarter.
Stocks in news
ITC closed up 1.17 percent, Marico closed up 1.30 percent after Deutsche Bank upgraded both these stocks.
RIL closed half a percent down after the company clarified that it is not seeking revision in price of natural gas produced from eastern offshore KG-D6 fields before April 2014 and has alleged that some vested interests were trying to create a needless controversy on the issue.
Hindustan Copper closed up 11 percent up after the EGoM cleared 4 percent divestment in the company .
The government will kick start its financial restructuring plan for the power distribution companies from January, next year.
Power Finance Corp closed up 0.69 percent.
Jet Airways was down 3.31 percent after a strong rally.
Metal stocks including Sterlite Industries (1.09 percent), JSW Steel (1.77 percent) and Sesa Goa (0.81 percent) closed up today.
IT stocks including Infosys (1.55 percent) and Wipro closed up 1 percent.
Strides Arcolab, Shree Cement and JPPower were among top Sensex gainers and Pantaloon Retail, Oberoi Realty and Tata Motors were top losers on the bourses.