Indian shares rose 1.5 percent on Wednesday after Finance Minister Arun Jaitley unveiled a budget with a range of incentives for companies and geared towards boosting infrastructure and developing the rural economy.
However, views on the fiscal deficit target were mixed after the government raised it to 3.2 percent from its earlier forecast of 3 percent, with some analysts expressing scepticism about whether it would be achievable.
Bonds were down with the benchmark 10-year bond yields up 1 basis point at 6.42 percent after rising as much as 5 bps earlier amid confusion about the government's planned gross borrowing numbers.
The numbers initially provided by the government did not account for a buyback of a net 750 billion rupees in bonds, which is part of the 6.05 trillion rupees gross borrowing projection for the next fiscal year and 3.48 trillion rupees net borrowing projection.
"The budget was neither popular nor populist. It was a rather tepid budget as has been the case lately," said Arvind Chari, head of fixed income and alternatives for Quantum Advisors.
"The budget proposals are not inflationary and, thus, if food prices remain benign, we could expect some rate cuts by the RBI (Reserve Bank of India)."
The Nifty was up 1.49 percent at 8,688.45 as of 0854 GMT, while the benchmark Sensex was 1.48 percent higher at 28,062.69.
The rupee strengthened to 67.59 per dollar from its previous close of 67.86.
Financials were among the top gainers on the NSE index, with the Nifty bank index climbing as much as 2.35 percent. State Bank of India was up 2.80 percent.
Among other gainers, fertiliser shares gained after Jaitley said he expected the agriculture sector to grow at 4.1 percent in 2016/17 with a better monsoon.
Deepak Fertilisers and Petrochemicals Corp rose as much as 7.29 percent, while Coromandel International Ltd climbed up to 5.21 percent.
(Reporting By Darshana Sankararaman in Bengaluru; Editing by Subhranshu Sahu)