Easing of foreign direct investment, positive global cues coupled with good foreign fund inflows also pushed up Nifty to its three-month closing high at 8,608.05.
"Markets continue their northward journey. Government's approval on composite FDI cap resulting in more capital flowing into the system lifted the sentiment," said Gaurav Jain, Director at Hem Securities.
In a bid to streamline the foreign direct investment (FDI) structure, the government today introduced a composite foreign investment cap by clubbing all forms of overseas investments to define sectoral limits.
Reacting the news, Axis Bank rose 4.14 per cent, followed by Kotak Bank 4.03 per cent, Yes Bank 3.11 per cent, HDFC Bank 1.54 per cent, SBI 1.29 per cent and ICICI Bank 0.83 per cent.
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On the day, the 30-share BSE Sensex opened higher at 28,259.70 and firmed up further to 28,478.43 before ending at three-month closing high of 28,446.12, disclosing a sharp gain of 247.83 points or 0.88 per cent.
The index had last ended at 28,666.04 on April 16.
"Further, Greece lawmakers also has passed the austerity laws aimed at paving the way for a European Union-backed bailout boosted the investors confidence," added Jain.
In overseas markets, European stocks were trading higher in their afternoon trade on Greece's Parliament nod. Asian stocks too ended higher.
Meanwhile, foreign investors bought shares worth Rs 407.69 crore yesterday as per provisional data.
"Continued improvement in FII inflows post the reduction in global risk is intensifying India's outperformance. The healthy interest of FIIs tells us that India is in a healthy spot," said Vinod Nair, Head of Fundamental Research at Geojit BNP Paribas Financial Services.