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The BSE Sensex rallied nearly 630 points, while Nifty closed above the 16,500 mark on Wednesday after IT and energy shares notched up sharp gains amid positive global market trends.
Buying in the index majors Reliance Industries, Infosys and Tata Consultancy Services and FII inflows bolstered sentiment.
Shares of firms related to oil exploration and refineries were in heavy demand, with Reliance Industries rallying 2.47 per cent and ONGC 4 per cent, as the government slashed windfall tax on petrol, diesel, jet fuel and crude oil.
The 30-share BSE Sensex rallied 629.91 points or 1.15 per cent to settle at 55,397.53. During the day, it jumped 862.64 points or 1.57 per cent to 55,630.26.
The broader NSE Nifty climbed 180.30 points or 1.10 per cent to 16,520.85.
Among the Sensex constituents, Tech Mahindra, Tata Consultancy Services, HCL Technologies, Reliance Industries, Infosys, State Bank of India, Wipro and Hindustan Unilever were the biggest gainers.
Mahindra & Mahindra, Sun Pharma, Kotak Mahindra Bank and Asian Paints were among the laggards.
In Asia, markets in Tokyo, Seoul, Shanghai and Hong Kong ended significantly higher following overnight gains in US markets.
Markets in Europe were trading mostly higher during mid-session deals.
"The sharp 8 per cent pullback in Nifty from June lows of 15,183 is all set to continue aided by a flood of good news. First, the US markets have rebounded sharply driven by impressive corporate earnings. Second, FPI selling appears to have bottomed out. FPIs have bought 5 days this month.
"Third, the relief announced by the government for the petroleum sector through reduction in windfall tax and cuts in duties on exports will be a major boost for the sector, particularly for RIL," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
The government on Wednesday slashed the windfall tax on petrol, diesel, jet fuel and crude oil following a decline in international rates.
Meanwhile, the international oil benchmark Brent crude declined 1.17 per cent to $106.1 per barrel.
Foreign institutional investors remained net buyers on Tuesday, picking up shares worth Rs 976.40 crore, according to exchange data.
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