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Indian shares snapped a losing streak on Thursday, led by a rally in state-owned lenders amid hopes of policy continuity after election trends indicated the ruling Bharatiya Janata Party (BJP) would retain power in the key state of Gujarat.

The Nifty 50 index closed 0.26% up at 18,609.35, after logging losses in the past two sessions, while the S&P BSE Sensex snapped a four-day losing streak to settle 0.26% higher at 62,570.68.

Indian Prime Minister Narendra Modi's BJP is headed for a landslide victory in his home state of Gujarat, while the opposition party Indian National Congress looked on course to return to power in the small northern state of Himachal Pradesh.

A victory for the ruling BJP would be seen as a positive for the market, as it means policy continuity and political stability ahead of the union budget (early next year), said Avinash Gorakshakar, head of research at Profitmart Securities.

Analysts expect the markets to remain lacklustre ahead of the U.S. Federal Reserve's rate decision and inflation data for November, due next week.

"With the macro uncertainty looming above us all, one should not be leveraged at these market levels", said Srikanth Subramanian, CEO of Kotak Cherry.

Among individual stocks in Mumbai, Sun Pharmaceutical Industries fell 3.63%, after the U.S. Food and Drug Administration slapped an import alert on the company's Gujarat facility. Besides capping gains on both the benchmark indexes, the stock also dragged the Nifty Pharma index down 1.1%, making it the top sectoral loser.

Axis Bank, IndusInd Bank, Eicher Motors, Larsen & Toubro and Hindalco Industries were the top gainers in the Nifty 50 index, rising over 1.6%.

All the major sectoral indexes, barring Nifty IT rose. The Nifty PSU Bank index, which tracks state-owned lenders, climbed as much as 3.81% on the back of an uptick in credit growth and improvement in asset quality. The index has gained 9.38% so far this month.