Benchmark indices extended gains to end nearly 2% higher on Wednesday after the government pledged support to keep state-owned banks in good health and the Reserve Bank of India eased rules on their core capital requirements under the upcoming Basel III norms.
The sentiment also improved after the global markets witnessed sharp rally in last few trading sessions.
FIIs have also started pouring money in Indian markets after the Finance Minister pledged to implement GAAR on taxes from April 1, 2017.
Further, India's GDP growth is likely to pick up to 7.8% in fiscal 2016-17 from 7.6% this year, largely driven by higher discretionary demand, a Nomura report said today.
The S&P BSE Sensex ended higher by 464 points or 1.95% at 24,243 and the Nifty50 gained 147 points or 2.03% to close at 7,369.
Among broader market, the BSE Midcap and Smallcap indices gained between 0.9%-2.2% each.
“Markets were highly oversold or short in the run-up to the Budget, given all the local and global factors.
"A lack of major negatives and credible numbers has led to massive short-covering and long positions being built in the equity markets.
"If global markets stabilize with lower volatility, India, which has underperformed in the last two months could start outperforming," says Mihir Vora -- Director and Chief Investment Officer, Max Life Insurance.
The rupee appreciated further as it rose by 17 paise to over a three-week high of 67.68 against the US currency on sustained bouts of dollar selling from banks and exporters amid firm domestic equities.
In the overseas markets, Asian shares rallied to two-month highs on Wednesday as overnight gains in oil prices and a batch of positive economic data from Australia to the United States calmed fears of a global economic slowdown.
The Nikkei was up 4% and Hong Kong's Hang Seng Index by 2.9%. MSCI's broadest index of Asia-Pacific shares outside Japan rose 2.5% to its highest levels since Jan 7, and building on gains in the previous session.
Back home, rate sensitive sectors like banks, realty and auto witnessed strong upmove on hope of rate cut in near future.
Banking shares mainly public sector undertakings rallied by up to 13% on the NSE after the RBI has allowed banks to beef up its capital adequacy by including certain items such as property value, foreign exchange for calculation of its Tier-I capital.
SBI, Bank of Baroda (BOB), Bank of India (BOI), Indian Bank, Union Bank of India, Canara Bank and Punjab National Bank were among few which surged more than 6%.
Adds Ravi Shenoy, VP-Midcaps Research, Motilal Oswal Securities, “Over the last three days, we have seen a healthy rally in the markets that has been broad-based.
"For short-term traders, we would recommend to keep taking trailing stop losses and keep a positive bias in banks, consumer durables and select economy related companies.
Rural-consumption base companies will continue to be in favour.”
Shares of real estate companies surged for the second straight trading sessions after the Union Budget presented by Finance Minister Arun Jaitley on Monday has assigned special thrust to rural India, infrastructure, real estate and the housing sector.
DLF, Unitech, Indiabulls Real Estate, DB Realty, Housing Development & Infrastructure, Phoenix Mills and Oberoi Realty rallied more than 5% each.
Hero MotoCorp moved higher to its 52-week high of Rs 2,834, up 5% on the NSE after the company clocked a double digit growth in two-wheeler sales in the month of February 2016.
M&M dipped 5% on the BSE in otherwise strong market after the company said Q4FY16 margins could be impacted by around 100 bps, due to expiry of excise duty exemption at its Haridwar plant.
BHEL surged 5% on the BSE after the company announced that it has won an order worth Rs 5,600 crore from Tamil Nadu government.
Other notable gainers were Adani Ports, NTPC, Tata Steel and HUL.
Among other shares, Shakti Pumps (India) soared 17% to Rs 149, extending its past two days rally on the bourses on back of heavy volumes.
Shares of Siemens were up nearly 3% after the company said it plans to divest its healthcare business.
Image: Bombay Stock Exchange. Photograph: Kind courtesy, BSE