At 1:34 pm, the Sensex traded 157 points - or 0.4 per cent - higher at 35,670 while the Nifty was up 45 points at 10,718.

Top gainers on the 50-scrip index were Bharti Infratel, Bharti Airtel, Tata Motors, State Bank of India (SBI) and Axis Bank, trading between 2.4 per cent and 3.2 per cent higher.

The benchmark indices were on course to break a two-day fall.

The Nifty Bank and Nifty PSU Bank indices were up 1 per cent and 2.5 per cent respectively. Other prominent contributors to the rise in the banking sector included Punjab National Bank (PNB), Bank of Baroda and ICICI Prudential Life Insurance, trading between 2 per cent and 3.5 per cent higher.

On the other hand, the Nifty IT index was down 1.2 per cent, with Infosys, Tech Mahindra and HCL Tech trading 1.4 per cent, 1.5 per cent and 1.6 per cent lower respectively.

Strength in the rupee along with caution among investors ahead of key quarterly results due next week kept the IT stocks under pressure, according to analysts. IT majors TCS and Infosys will report their earnings for the October-December quarter on January 10 and 11 respectively.

"Earnings at a time when the country is awaiting elections will not have a very big impact, unless they are dramatically different from expectations," Deepak Jasani, head of retail research at HDFC Securities, was quoted in a report by news agency Reuters. "So, there will be muted impact of earnings and investors will watch the outcome of elections." he said.

Foreign fund outflows also kept investors on the back foot. Foreign institutional and portfolio investors have offloaded equities worth a net $171 million so far this week as of Thursday.

On Thursday, foreign portfolio investors (FPIs) net sold shares worth Rs 972.81 crore while domestic institutional investors (DIIs) were net buyers of shares to the tune of Rs 34.52 crore, according to provisional data with the NSE.