Global cues helped sentiments on the Street. European stocks traded higher, with Spain's IBEX benchmark gaining 1%. Markets in Asia advanced for a third straight day.
The rupee tested the 55 mark to the dollar in intraday trade, fuelling hopes that some stability might emerge at current levels. The Nifty index advanced 52.55 points to 5,049.65, while the Sensex gained 195 points or 1.2 per cent to 16,649. Analysts, who were bearish till the previous two sessions, were hopeful of further upsides in equities.
"Markets are headed higher. Valuations look fair at 5,200-5,250 levels on the Nifty," Phani Sekhar, fund manager at Angel Broking told NDTV Profit.
Banking stocks (2.1%) led the rally on the BSE. Other rate sensitive stocks - auto (1.32%) and realty (2.2%) - also saw buying interest. Investors have lapped on to these stocks on hopes that the central bank will cut rates to kick start the economy later this month.
"There is a scope for easing monetary policy given that GDP growth is lower than potential, core inflation has subdued, there is a substantial reduction in crude prices and global uncertainties have increased," Samiran Chakraborty, chief economist at Standard Chartered told NDTV Profit.
HDFC Bank, ICICI Bank and Infosys contributed over 100 index points to the BSE benchmark.
Market bellwether Reliance Industries (0.75%) closed off the day's high. Chairman Mukesh Ambani said the company's operating profits would double in the next five years in the annual AGM, but investors were looking for concrete steps to bolster the falling output from the company's flagship KG-D6 output.
Infosys (1.5%) was the sole gainer among frontline IT stocks. Analysts attributed gains in the counter to favourable valuations. Wipro (-2.4%), TCS (-0.9%) and HCL Tech (-0.6%) were the big laggards on the Nifty index.
On the Nifty, 36 of the 50 stocks ended higher. Commodity stocks like Sterlite Industries (3.9%) gained on the back of improving global cues.
Infra stocks rallied for a second day after the government vowed to push ahead with major transport and power projects in the current financial year.
The market breadth was positive with 65% stocks rising on the broader BSE 500 index.