foreign buying of index futures and options on Tuesday, worth 21.51 billion rupees ($347 million), a rare event one day ahead of the expiry of derivative contracts. Financial markets in India will remain closed on Thursday for a local holiday.
Traders will continue to monitor moves in other regional markets for near-term direction, ahead of December-quarter economic growth data due to be released after market close on Friday.
"FIIs flows are driving the market and may even overshadow GDP data. We are positive about the market for the month of March and are seeing a pre-election rally taking shape," said Vinod Nair, head of fundamental research at Geojit BNP Paribas Financial Services.
India's economic growth likely slowed to a near decade-low of 4.9 percent at the end of last year as high interest rates hit factory activity, according to economists polled by Reuters who don't expect a pickup in investment before elections in May.
The benchmark BSE index rose 0.65 percent, or 134.52 points, to end at 20,986.99.
The broader NSE index rose 0.62 percent, or 38.75 points, to end at 6,238.80. It closed above the psychologically important 6,200 level for the second day. Both the indexes marked their highest close since Jan. 24 for a third consecutive day.
India's National Stock Exchange on Wednesday launched trading of futures <0#NVIXW:> tied to its VIX volatility index , known as the "fear gauge," providing a key hedging tool against uncertainty ahead of general elections and weaker global market sentiment.
Trading was active with 3.25 billion rupees ($52.4 million) worth of turnover, the NSE website showed.
India's regional parties met on Tuesday to declare a political alternative to the two main national parties, the ruling Congress and the main opposition BJP, ahead of national elections due by May.
Cigarette-maker ITC Ltd rose 2.1