The BSE Sensex gains 0.3 percent and the broader Nifty is up 0.5 percent after the Reserve Bank of India raised the repo rate by 25 basis points as widely expected, while lowering short-term interest rates.
Some traders had been worried the RBI would raise interest rates more aggressively on Tuesday after saying on Monday it expects inflation to remain near the current elevated levels for the remainder of the fiscal year that ends in March.
Banks gain with ICICI Bank Ltd up 2.3 percent and State Bank of India Ltd 0.8 percent higher.
Maruti Suzuki India Ltd gains 6.2 percent after the country's biggest carmaker reported July-September net profit tripled from a year earlier, beating estimates.
Cairn India Ltd gains 2 percent after Brent crude oil futures held within sight of a near one-week high as a sharp drop in Libyan oil exports rekindled worries over supply.