The Sensex vaulted 635 points while the Nifty reclaimed the 12,000-mark on Thursday as global investors heaved a sigh of relief after the US and Iran appeared to be backing off from a wider military conflict.
The 30-share BSE Sensex opened on a strong footing and maintained its momentum throughout the session. It finally closed at 41,452.35, up 634.61 points, or 1.55 per cent.
Similarly, the broader NSE Nifty surged 190.55 points, or 1.58 per cent, to 12,215.90.
Global equities soared after President Donald Trump said the US is "ready to embrace peace with all who seek it", a day after Iran fired rockets at American military bases in Iraq in response to the killing of its top general Qassem Soleimani.
Reports said there were no US or Iraqi casualties, amid speculation that Tehran may have deliberately pulled its punches to avoid a wider conflagration.
Risk sentiment received a further leg up after China said its Vice Premier Liu He will visit Washington next week for the signing of the much-awaited interim trade deal with the US.
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ICICI Bank was the top gainer in the Sensex pack, rallying 3.80 per cent, followed by SBI, M&M, IndusInd Bank, Maruti Suzuki, Asian Paints and Reliance Industries.
TCS, HCL Tech, NTPC and Sun Pharma were the only laggards, shedding up to 1.73 per cent.
Meanwhile, Prime Minister Narendra Modi on Thursday held discussions on the state of the economy with economists, sector experts and entrepreneurs at the Niti Aayog, and promised to take both short-term and long-term measures to revive growth.
"Expectation for initiatives to bring growth in the upcoming Budget and easing tensions in the Middle East seems to cheer investors. Government is poised to bring initiatives and policy measures to support the economic growth to benefit equities for long-term.
"Meanwhile, the short-term market trend will be driven by events like Q3 results which are expected to show some improvement due to low base," said Vinod Nair, Head of Research, Geojit Financial Services.
BSE realty, auto, bankex, industrials, finance and energy indices rallied up to 2.83 per cent, while IT ended in the red.
Broader BSE midcap and smallcap indices surged up to 1.55 per cent.
Bourses in Shanghai, Hong Kong, Tokyo and Seoul ended up to 2.31 per cent higher. European markets too started with significant gains.
Brent crude oil futures rose 0.40 per cent to USD 65.70 per barrel.
The rupee appreciated 26 paise to 71.43 per US dollar (intra-day).