The BSE Sensex posted its second straight rise on Wednesday to close up 1.65 per cent or 285.53 points, its best single-day percentage rise in nearly two weeks, led by export-focused software companies and financials on renewed growth hopes.
Technology companies Tata Consultancy Services (TCS) and Infosys, which draws more than half of revenue from the US, gained 3.6 and 1.3 per cent, respectively after a weaker rupee pushed buying in the sector.
A favourable liquidity backdrop fuelled by foreign fund flows ahead of fourth quarter earnings is expected to overcome fiscal and political concerns which have been a drag on local stocks, analysts said.
Foreign institutional investors have been heavy buyers of Indian equities, having pumped in a net $1.4 billion in just seven straight sessions to Monday.
Banks extended gains on short-covering and on market talk of a possible near-term rate cut by the Reserve Bank of India.
Top private lender ICICI Bank rose 2.8 per cent, while smaller rival HDFC Bank was up two per cent. State Bank of India gained 2.1 per cent.
The main 30-share BSE index rose 285.53 points to 17,601.71, with 24 of its components advancing. The 50-share Nifty index rose above its 50-day moving average to end up 1.7 per cent at 5,364.95.
“The budget effect is getting over and there was block-buying observed in the market,” said Hitash Dang, vice president at Jaypee Capital.
However, analysts also said the current rally was temporary as inflation worries persist.
"Downside (for the index) is limited, but there is no trigger for a major upward movement," Ambareesh Baliga, chief operating officer at Way2Wealth Brokers said.
Shares in software services firm Tech Mahindra rose 5.6 per cent after its board approved merging Mahindra Satyam with itself. Shares in Mahindra Satyam ended up 4.7 per cent.
Shares in GVK Power & Infrastructure Ltd jumped 4.2 per cent after its Australia unit's chief executive told Reuters the company was looking to sell its stakes in the Alpha coal project and related port and rail assets in Australia to help fund the $10 billion cost of the projects.
Positive sentiment in index stocks turned the short-covering in Larsen and Toubro (L&T) and Bharat Heavy Electricals Ltd (BHEL) into building of fresh long-term positions, leading to heavy buying, Nandish Patel, derivatives analyst at brokerage Sharekhan said.
L&T gained 4.6 per cent, while BHEL rose 2.94 per cent.
