Robust GDP data for the December quarter provided the markets a big relief as the Sensex today rallied over 241 points to end at about a six-month high of 28,985 amid favourable global cues.
The impact was such that even the broader NSE Nifty took back the 8,900-mark.
The Central Statistic Office yesterday showed that India's economy expanded by 7 per cent in the third quarter, belying all fears of the note ban puncturing economic activity.
The Sensex took off on a positive note and went past the key 29,000-mark to touch a high of 29,029.17 before settling up by 241.17 points, or 0.84 per cent, at 28,984.49, a level last seen on September 8 last year when it had closed at 29,045.28.
The gauge had lost 149.65 points in the previous two sessions.
The NSE Nifty also moved up 66.20 points, or 0.75 per cent, to 8,945.80 after shuttling between 8,960.80 and 8,898.60.
Sentiment also got a lift after a monthly survey showed that India's manufacturing sector grew for the second straight month in February.
Meanwhile, Moody's Investors Service said demonetisation will be credit positive for India as it is likely to reduce tax avoidance and corruption.
Both the key indices have rallied by almost 9 per cent in the past two months, largely on the back of a growth-oriented Budget, better-than-expected earnings from bluechip companies and strong global cues.
The government pegged GDP growth at a higher-than-expected 7.1 per cent for 2016-17 despite the cash blues, with manufacturing and agriculture doing exceptionally well, which in turn made India retain the tag of the world's fastest growing large economy.
The GDP projection for the fiscal at 7.1 per cent in the second advance estimate is the same as the first one put out by the CSO in January.
Better Chinese factory readings and a higher opening in Europe amid US President Donald Trump's congressional speech too influenced mood, which led to a higher closing in Asia.
In Asia, Hong Kong's Hang Seng rose 0.15 per cent and Japan's Nikkei up 1.44 per cent while Shanghai Composite Index was up 0.16 per cent.
In Europe, London's FTSE was up 0.61 per cent, Paris' CAC 40 1.11 per cent and Frankfurt's DAX 30 1.14 per cent in their early deals.
Stocks of automobile companies led by M&M, Hero Motocorp and Bajaj Auto were in limelight and gained up to 3.13 per cent largely on the back of encouraging sales numbers for February.
Other prominent gainers included Tata Steel, Dr Reddy's, ITC Ltd, Sun Pharma, HDFC Ltd, Axis Bank, Infosys, SBI, Hindustan Unilever, ICICI Bank, Power Grid and Cipla, rising by up to 3.66 per cent.
Out of the 30-share Sensex pack, 21 ended higher while 9 led by GAIL, NTPC, Tata Motors, Bharti Airtel, RIL, Coal India, Lupin and Wipro ended lower, which limited the gains.
The BSE realty index gained the most by surging 3.46 per cent, followed by metal 1.91 per cent, FMCG 1.30 per cent, bank 0.96 per cent and healthcare 0.87 per cent.
In step with the trend, the small-cap index rose 0.45 per cent and mid-cap 0.13 per cent.
Meanwhile, foreign investors bought shares worth Rs 1,146.23 crore yesterday, showed provisional data.
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