The BSE Sensex surged nearly 700 points to reclaim the 28,000 mark in the afternoon trade after the Reserve Bank of India in a surprise move cut its main lending rate (repo rate) by 25 basis points.
The 50-share Nifty also surged more than 200 points to a day high of 8,483.65.
Rate-sensitive stocks like banks, auto, realty surged, pushing the benchmark indices higher.
The Bank Nifty was up over 3 per cent after making a fresh 52-high of 19,410.40 earlier in the day. The rate cut by RBI will help a revival in the credit cycle and also banks will have mark-to-market gain on their bond portfolio, which will boost their profit, analysts say.
ICICI Bank, SBI, Axis Bank, PNB all were up more than 3 per cent. Three out of the top five gainers in Nifty were banks.
The auto index was up 2.45 per cent, while the realty index added more than 6.5 per cent as rate cut will help revival in these sectors. DLF was the top gainer in Nifty with more than 10 per cent gains, while M&M was up over 4 per cent.
As of 1.24 p.m. the Sensex was up 670 points at 28017, while the Nifty traded 2.4 per cent higher at 8,476.
Tracking the gains in equities the Indian rupee surged 53 paise against the dollar to a nearly 2-month high of 61.65. Weakness in dollar against other major Asian currencies also helped the gain in rupee, traders said.