Markets ended Tuesday's session on a strong note on the back of broad based buying ahead of the F&O expiry due on Thursday.
The sentiment was boosted after the rating agency Moody's said that the outlook on its Baa3 rating for India is stable.
On the political front, the Manmohan Singh led United Progressive Alliance government has ensured that they have enough numbers in Parliament to pass the FDI recommendations this also added to the positive sentiment of the street.
The Sensex closed higher by 305 points at 18,842 and the 50-share Nifty closed above the crucial psychological levels of 5,700, up 91 points to end at 5,727.
The Asian markets ended on a mixed note in trades today as global lenders reached a deal on new debt targets for Greece and a political agreement on disbursing the next installment of aid.
The Hang Seng ended lower by 18 points at 21,844 and Shanghai Composite slipped 26 points to end at 1,991.
While, Nikkei advanced 0.4% or 34 points to end at 9,423, Straits Times and Seoul Composite also closed on a positive note.
The European markets were also trading on a positive note on the news from Greece that the lenders reached a deal a deal to reduce Greek debt and disburse the country's next aid installment.
The CAC40, DAX and FTSE were trading higher by 0.5-0.7% each.
Back home, Moody's said on Tuesday that the outlook on its Baa3 rating for India is stable, in part due to the country's high savings and investment rates, as debate rages in Delhi over whether the country can avoid credit downgrades from other rating agencies.
In its annual credit analysis on India, which Moody's said does not constitute a rating action, the agency also cited the country's large, diverse economy and strong gross domestic product growth as supportive of the rating.
Bharti Airtel was the top Sensex gainer.
The stock jumped 5.2% to end at 326 after the Reserve Bank of India has relaxed the external commercial borrowing (ECB) policy for the 2G spectrum auction
Shares of HDFC Group companies -- Housing Development Finance Corporation and HDFC Bank surged almost 3% each on the Bombay Stock Exchange on back of heavy volumes.
HDFC Bank, a unit of HDFC, ended near its historic high the stock closed higher by up 3% at Rs 684, after the bank's American depository receipt gained 2.38% to settle at $41.23 on the New York Stock Exchange on Monday, 26 November 2012.
Shares of metals companies ended higher on the bourses after LMEX, a gauge of six metals traded on the London Metal Exchange, rose over 1% in the previous two sessions.
Sterlite Industries, Hindalco, Tata Steel and Jindal Steel ended higher by 1.5-3% each.
Among the other gainers, Cipla, ITC, Infosys, Bajaj Auto, Dr Reddy's Labs, Reliance Industries, Tata Motors, Tata Steel, BHEL, Hero MotoCorp, Bajaj Auto, ICICI Bank, Dr Reddy's Labs, SBI, and Wipro are also trading higher in the late noon deals.
While, NTPC and ONGC were among the only laggards on the Sensex.
On the sectoral front, the BSE realty index outperformed the benchmark indices.
The index surged 3.2% or 60 points to end at 1,937. Consumer durables, FMCG, bankex, metal, IT, oil & gas,healthcare and capital goods indices also closed higher by 1-3% each.
Among the individual stocks, United Spirits rallied 5% to Rs 2,039, extending its previous day's 3% rise, after Nomura upgraded the stock to 'BUY' and raised its price target to Rs 2,200.
Suzlon Energy surged almost 11% to Rs 17.45 on back of over three-fold jump in trading volumes on reports that the wind turbine makers has been admitted to corporate debt restructuring process.
L&T Finance Holdings moved higher by over 3% at Rs 77.55, after the financial arm of engineering giant Larsen and Toubro sold 7.9 million shares of Federal Bank through bulk deals today.
The company would receive around Rs 300-350 crore from the deal.
Hindustan Copper dipped almost 10% to close at Rs 153.45 falling below its average offer for sale price of Rs 156.56 per share on the Bombay Stock Exchange.
The stock of state-owned company tanked 42.3% in past three trading sessions from Rs 266 after the government had set a floor price of Rs 155 per share for its stake sale.
The broader markets also ended on a firm note.
The BSE mid-cap index advanced 1.2% or 78 points to end at 6,742 and the small-cap index ended higher by 1% or 66 points to close at 7,183.
The overall breadth was positive as 1,745 stocks advanced while 1,146 declined.