Nifty 50 stock index jumped to its highest closing level since mid-January on Tuesday, driven by sharp gains in financials, while investors eyed US inflation data for cues on interest rates.
The Nifty 50 index was up 0.75 per cent at 18,070.05, while the S&P BSE Sensex rose 0.76 per cent to 60,571.08, both registering their fourth straight session of gains.
Emerging market peers, and broader stock markets too, traded higher as the dollar index weakened ahead of data that could show US inflation is peaking.
Meanwhile, persistent foreign investor purchases and weak oil prices aided gains in local stocks, analysts said.
"What is adding to the fizz has been the return of the FIIs (foreign institutional investors) into local shares over the past month or so and the falling US dollar index," said Shrikant Chouhan, head of equity research (retail) at Kotak Securities.
"If the US inflation level shows some moderation, markets may gain more ground," Chouhan said.
Heavyweight financial firm Bajaj Finserv was the top gainer on the Nifty 50, advancing 4.1 per cent ahead of the record date for a stock split and bonus issue of shares.
Private sector lenders IndusInd Bank and HDFC Bank gained 2.4 per cent and 1.3 per cent, respectively.
Vedanta jumped 2.7 per cent to a mid-June high after the company said it will invest $19.5 billion along with Taiwan's Foxconn to set up semiconductor and display production plants in the western state of Gujarat.
Infrastructure firm GPT Infraprojects surged 20 per cent after winning an order worth about $22 million from the Northern Railway.
FMCG major Britannia Industries gained 2.3 per cent while Tata Consumer Products climbed 2.9 per cent.
Earlier in the day, investors had moved past domestic data that showed domestic inflation accelerating higher-than-expected to seven per cent in August, while industrial output in July rose a slower-than-expected 2.4 per cent.