The sharp gains came on the back of a global surge in stocks following a decision by European leaders who agreed to use the continent's permanent bailout fund to recapitalize struggling banks, and agreed to the idea of a tighter union in the long term. The bank decision was aimed at helping Spain, the Associated Press reported.
Markets across Asia extended gains, with benchmarks in Hong Kong rising over 2%. Japan's Nikkei index traded 1.45% higher.
Domestic sentiments were boosted by the new draft guidelines on the general anti-avoidance rules (GAAR) announced late night yesterday. According to the guidelines, the tax evasion rule will be invoked only in those cases where foreign investors have opted to take the benefit of tax avoidance treaties. The rules would not apply retrospectively and will be triggered only above a certain income threshold.
Markets are likely to give thumbs up to these measures, analysts say.
"If the reform process flows over the next couple of weeks, I will not be surprised if we go to 5,500-5,600 levels... Markets are waiting for the sentiment on the ground level to change," Ambareesh Baliga, chief operating officer at Way2Wealth told NDTV Profit.
At 10.51 a.m., the Sensex traded 330 points higher at 17,320, while the Nifty gained 96 points to 5,245. The Indian rupee also traded with 0.6% gains at 56.45 to the dollar.
Banking, power, auto, capital goods, and FMCG stocks traded with 2-3% gains. All other groups of stocks traded higher. ITC, ICICI Bank, L&T, HDFC Bank, Reliance Industries, and Infosys were the top Sensex movers, adding over 150 index points to the BSE benchmark.
Oil and gas major Cairn India (-6%) and oil refiner BPCL (-0.9%) were the only stocks trading lower on the Nifty index. Cairn India shares fell after its erstwhile promoter Cairn Energy sold shares in the open market.
The market breadth was strong with over 88% stocks rising on the broader BSE 500 index.