The Bombay Stock Exchange Sensex halted a two-session retreat and rose 1.1% on Monday, led by gains in energy giant Reliance Industries and top oil explorer ONGC, with firm European equities supporting the gains.

RIL rose 2.3% after the conglomerate said it has discovered more oil in the country’s western coast, raising the potential of exploratory blocks it has been drilling.

Reliance Communications led by Anil Ambani, soared as much as 6.4% to its best in eight months after the country’s second-largest mobile operator agreed to merge its telecom towers business with that of GTL Infra-structure.

The 30-share BSE index closed 1.14% or 199.73 points higher at 17,774.26, with 24 of its components closing in the green.

“From the current signs, monsoon should not be bad and earnings are likely to be good. Also, the sentiment globally towards India is positive for now,” said VP Chaturvedi, managing director of Tata Asset Management. “But, the key risks are event risk and stretched valuations,” he said, adding that investors must watch out for any negative developments overseas.

June-quarter earnings, to be announced in July, are expected to provide further directional cues to the market.

The benchmark index has outperformed its peers in China and Brazil so far this year. Sensex rose 1.8% so far in 2010, while Brazil’s Bovespa and China’s Shanghai Composite Index have shed 5.5% and 22.6% respectively.

Economic growth and better corporate earnings are likely to drive Indian shares over the next 12 months. The BSE index should rise to 19,000 points by end-2010, the median estimate in a Reuters poll of 20 market participants showed, while 17 saw it rising to 21,000 by end-June 2011.

ONGC closed 3.2% higher at Rs 1,304.30, after hitting 1,330.80, its highest level since January 2008. The increase in fuel prices will help lower the company’s subsidy burden and boost earnings.

“We believe deregulation of gasoline price is the first key milestone in fuel pricing reforms and that more clarity and direction are likely going forward,” Goldman Sachs analysts Nilesh Banerjee and Nishant Baranwal said in a note.

State-run oil marketing companies Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp, which would also benefit from the federal price hike, firmed between 3.4% and nearly 8%.

Goldman Sachs said ONGC and BPCL were its top picks, followed by HPCL and IOC. Reliance Communications closed 4.7% higher at Rs 201.45, after touching Rs 204.75, its highest since Oct. 28, 2009, with analysts saying the towers deal would benefit shareholders.