Benchmark share indices ended higher amid short covering in late trades with auto and realty shares leading the gains as the SLR cut by the RBI would facilitate funding of credit to both these sectors.
The 30-share Sensex surged 185 points to end at 25,908 and the 50-share Nifty ended up 63 points at 7,747.
Meanwhile, the Reserve Bank of India at its Monetary Policy Review today kept key policy rates unchanged, but cut the SLR by 50 bps to 22%.
The repo rate stands unchanged at 8% and CRR at 4%. This is the second consecutive time that the rates have been left unchanged due to stubborn inflation. The Reserve bank also cut the HTM ceiling to 24%.
The broad expectation was that the RBI will keep the repo rate (at which it lends to banks) unchanged at 8%.
This is despite a lower print for the Consumer Price Index (CPI)-based inflation for June. The latter rose 7.31% from a year earlier in June, compared with a rise of 8.28% in May.
This is under RBI's January-end projection of 8%, though above its comfort level.
Further, according to a private market survey, India's services sector grew at a slower pace in July because of moderation in order flows.
The headline HSBC Services Business Activity Index stood at 52.2 in July, lower from June's 17-month peak of 54.4.
Asian shares ended mixed concerns of weak services sector growth from China. The Nikkei ended down 1% at 15,320.31.
Singapore's Straits Times and Hang Seng ended up 0.2-0.3% each while China's Shanghai Composite ended trading flat with negative bias.
European shares were trading higher after Portugal's financial rescue of its largest listed bank Banco Espirito Santo while robust earnings from top corporates also boosted sentiment. The CAC-40, DAX and FTSE-100 were each trading 0.5-0.8% higher.
The BSE Auto index was the top sectoral gainer up 2.1% followed by Realty, Consumer Durables and Metals among others. However, Capital Goods index was the sole loser.
Among the rate sensitive shares, financials witnessed a mixed rend post the policy action by the RBI while Auto and Realty shares remained firm.
In the auto pack, M&M, Bajaj Auto, Tata Motors and Maruti Suzuki ended up 0.7-3.8% each.
HDIL, Unitech, Indiabulls Real Estate, GOdrej Properties, Anant Raj Ind, DB Realty, DLF were among the top gainers in the realty segment up 2-8.6% each.
However, Hero MotoCorp ended nearly 1% down ahead of its June quarter earnings later today.
Metal shares also ended higher with Hindalco, Sesa Sterlite, Tata Steel gaining 1.8-2.7% each.
Cement shares were also among the gainers with ACC, Ambuja Cements, Grasim, UltraTech up over 3% each.
The management of cement companies expects construction activity to gather pace on the back of favourable announcements in the Budget for infrastructure and housing.
ITC trimmed losses to end 0.4% higher. The FMCG major increased the prices of some of its cigarette brands by up to 23%.
Index heavyweight Reliance Industries ended down 0.2%.
Among other shares, Marico ended up 3.3% after the company reported a better-than-expected 19% year-on-year jump in consolidated net profit at Rs 185 crore for the quarter ended June 30, 2014 (Q1), on back of strong volume growth.
The personal products maker had profit of Rs 158 crore in year ago quarter.
Petronet LNG dipped 4.2% to end at Rs 172 after reporting a 30% year-on-year decline in net profit at Rs 157 crore for the first quarter ended June 30, 2014 (Q1), due to higher finance cost.
SRF has zoomed 10% to end at Rs 642 after reporting a robust 127% year-on-year (yoy) jump in net profit at Rs 99 crore for the quarter ended June 30, 2014 (Q1), on back of strong operational performance.
The textiles firm had profit of Rs 44 crore in a year ago quarter.
Sudarshan Chemical Industries has zoomed 15% to end at Rs 1,165, extending its previous day’s rally, after the company announced that the board will consider maiden bonus issue and stock split of face value of equity shares from Rs 10 to lower denominations.
In the broader market, the BSE Mid-cap index ended up 0.8% and BSE Small-cap index ended up 1.1%.
Market breadth ended strong with 1,778 gainers and 1,142 losers on the BSE.