The benchmark BSE Sensex jumped over 140 points at the closing session led by the Cabinet nod for a Bill on the goods and services tax that incorporates recommendations from a parliamentary panel, and on no major surprises from the Federal Reserve meeting.
The Cabinet approval raised some hopes for parliamentary approval, analysts said, thought the fate of the Bill remains uncertain.
Investors were also relieved after the Fed's statement was largely in line with expectations, still leaving the door open for a possible interest rate hike in September.
Brokers said short-covering by investors as today being the last trading session of July expiry in the derivatives segment, also supported the uptrend.
The 30-share BSE index Sensex ended higher by 141.92 points or 0.51 per cent at 27,705.35 and the 50-share NSE index Nifty ended up by 46.75 points or 0.56 per cent at 8,421.80.
Among BSE sectoral indices, realty index gained the most by 3.48per cent, followed by FMCG 2.74 per cent, power 1.14 per cent and PSU 0.86 per cent. On the other hand, IT index was down 0.77 per cent, followed by TECk 0.54 per cent, capital goods 0.24 per cent and metal 0.19 per cent.
Top five Sensex gainers were Dr Reddy's (+5.23%), Cipla (+4.79%), ITC (+3.9%), HUL (+2.32%) and HDFC (+1.96%), while the major losers were Sun Pharma (-1.89%), Hindalco (-1.6%), Infosys (-1.48%), TCS (-1.08%) and Tata Steel (-0.92%).
Hopes on the GST Bill boosted logistics stocks, with Gati Ltd shares up 4.57 per cent and Gateway Distriparks Ltd up 5.55 per cent.
"One is we are seeing the possibility of the clearance of GST and the second part is the Fed has given reasons why it won't be in a hurry to increase the rate of interest," Deven Choksey, managing director, KR Choksey Securities.
Europe's stock markets had initially started brightly but began to fade as attention switched from company earnings from the likes of Siemens and Deutsche Bank to upcoming euro zone unemployment, business sentiment and German inflation data.
Asian markets were in the green after the US Federal Reserve kept interest rates unchanged in its Federal Open Market Committee (FOMC) meeting last night.
A statement from FOMC said: "To support continued progress towards maximum employment and price stability, the committee today reaffirmed its view that the current 0 to 1/4 per cent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the committee will assess progress -- both realised and expected -- towards its objectives of maximum employment and 2 per cent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labour market and is reasonably confident that inflation will move back to its 2 per cent objective over the medium term."