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The Sensex and Nifty ended higher by nearly 1.8 per cent as Wall Street hit a record high overnight and as investors expected the European Central Bank to extend its asset buying campaign at a policy meeting later in the day.
The gains helped domestic shares overcome declines in the previous session after the Reserve Bank of India unexpectedly kept interest rates unchanged despite investor concerns about the impact of Prime Minister Modi's demonetisation drive.
The 30-share BSE index Sensex closed higher by 457.41 points or 1.74 per cent at 26,694.28 and the 50-share NSE index Nifty was up 144.8 points or 1.79 per cent at 8,246.85.
Among BSE sectoral indices, metal index gained the most by 2.93 per cent, auto 2.63 per cent, infrastructure 1.87 per cent and IT 1.74 per cent.
Top five Sensex gainers were Tata Steel (+4.62%), Tata Motors (+3.6%), Adani Ports (+3.3%), Bajaj Auto (+2.77%) and Hero MotoCorp (+2.53%), while the only loser was NTPC (-0.06%).
Asian shares hopped to one-month highs, with MSCI's broadest index of Asia-Pacific shares outside Japan gaining 1.2 per cent.
Lenders also gained after the RBI reversed an order that forced banks to deposit all their extra cash with it in a bid to absorb excess liquidity.
“Today's market move is more to do with global markets, which are doing well,” said Neeraj Dewan, director at Quantum Securities.
Kamlesh Rao, CEO, Kotak Securities, said: "Monetary policy committee’s status quo stance on the rate has been already discounted by the market. This move is slightly negative for the rate sensitive sectors. However, the announcement on CRR is positive for banks.The next RBI policy date is slated for 7-8 February, post FY18 Budget announcement on 1st February, 2017. We expect the MPC to cut rates in the next policy meet depending on the fiscal outcome. There are strong feelers that Fed will almost certainly increase the rates in the upcoming December meet. If the Fed increases the rates and we would be reducing the rates, there could be some pressure on the currency and which could then have an inflationary effect on the economy. Apart from triggering bouts of high volatility in the financial markets, these macroeconomic implications for emerging markets economies could trigger the FIIs to stay invested in the US markets."
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