Morgan Stanley, JP Morgan and CLSA were among the houses to raise their ratings to the equivalent of a "buy", as they expect United Spirits' debt to fall and profits to rise after the deal, which will cost Diageo up to £1.3 billion. USL's shares previously rose 1.3% on Friday when the deal was announced.
The deal will free up resources for United Spirits owner Vijay Mallya. His scramble to raise funds for his airline Kingfisher has weighed on his other business interests.
"USL is now a stock for every portfolio, we believe," Morgan Stanley said. The US investment bank raised its rating on United Spirits to "overweight"
CLSA raised its rating on USL to "buy", saying the deal would benefit United Spirits by reducing debt, increasing earnings, imposing financial discipline and providing operational advantages. JP Morgan raised its rating to "overweight".
"This will likely help increase focus on premiumisation, rationalise expenditure and exploit synergies between the two com-panies," said the bank.
United Spirits's shares rose 34.7% to 1832.95 rupees, and had traded as high as 1874.60 rupees.
The City was also positive about the benefit Diageo could get from the deal.
Phil Carroll, analyst at Shore Capital, said: "We see Diageo taking a stake in USL as part of the long-game and USL's growth potential, not including any changes to the current import excise duty regime in India, looks very attractive alone."
Diageo's shares fell 3p, or 0.2%, to 1800p.
Under the deal, Diageo would first buy a 27.4% stake from United Spirits' founders at 1440 rupees per share, then launch a mandatory open offer for the remainder. It is not yet known whether Diageo or United Spirits will have to dispose of any of their Scottish whisky interests, although Diageo has played down the likely impact.