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 percent, while Sun Pharmaceutical Industries Ltd gained 1.5 percent. Among other blue chip stocks, HDFC Bank rose 0.9 percent, while Mahindra and Mahindra Ltd ended 2.2 percent higher.
The NSE software index ended 0.37 percent higher after earlier marking its all-time high at 10,212.60, rising for a second straight day on continued optimism about U.S. business outlook.
Wipro Ltd gained 1.1 percent, while Infosys Ltd rose 0.7 percent.
Dr. Reddy's Laboratories Ltd rose 2.3 percent after earlier marking its record high of 2,849.40 rupees on growing hopes about its U.S. business. The drugmaker also said late on Tuesday it launched Sumatriptan injection, used to treat migraine, for U.S. markets.
However, L&T Finance Holdings fell 2.8 percent on profit-taking after gaining 3.9 percent on Tuesday on expectations it