Markets gained over 2% on Friday to end at their highest closing levels since July 2011 after the government stuck to its commitment to continue with the reform process.
The gains were led by financials, capital goods and index heavyweight Reliance Industries.
The Sensex closed for the day at 18753, up 403 points and the Nifty gained 137 points to close at 5,691.
During the previous high, the BSE benchmark index had ended at 18,763 on July 1, 2012 while the Nifty closed at 5,701 on May 1, 2011.
The broader markets underperformed with the midcap and the smallcap indices up 1.6% and 1.4% respectively as compared to the Sensex up 2.2%
Keeping up its reforms commitment, Finance Minister P. Chidambaram announced that the withholding tax on overseas borrowing by local companies will be reduced to 5% from 20%.
Asian markets ended on a positive note in trades today as stimulus measures from major central banks continued to buoy investor confidence, offsetting weak economic data. Japan's Nikkei advanced 0.3% to close at 9,110, Hang Seng added 0.7% and Shanghai Composite was flat with a positive bias.
The European markets too started in the green with the CAC and DAX gaining 0.4% and 0.3% respectively. Meanwhile, FTSE slipped into the red, losing 0.1%
Except, IT, all the other sectoral indices on the BSE ended higher. Power, Capital Goods, Metal and Bankex indices which advanced 4% each were the top gainers for the day.
On the other hand IT index lost nearly 0.7% after the rupee rose to its highest level in over four months.
BHEL, Jindal Steel, Sterlite, SBI, ICICI Bank, L&T, Tata Power and Bharti Airtel which between gained 4-7% were the top Sensex gainers.
The other notable names among the winners included Tata Steel, Hindalco, ONGC, HDFC Bank, Mahindra & Mahindra and Gail India up 3% each.
Major IT scrips namely TCS, Infosys closed down 1% each along with Dr Reddys Lab.
Aviation shares continued their good run following the government's decision to allow FDI in domestic airlines.
Jet Airways was up 2%, Spice Jet jumped 2.4% while Kingfisher soared 5% respectively.
The decision to allow 51% foreign direct investment has also impacted multi-brand retail shares.
Pantaloons Retail zoomed 5%, followed by Reisix, Trent and Shoppers Stop.
Shares of IRB Infrastructure Developers jumped 8% after the Government on Thursday cleared road projects worth nearly Rs 12,000 crores under the viability gap funding scheme.
Suzlon gained 4.5% this afternoon at Rs 17.25 on news that its subsidiary, REpower Systems has signed a contract for delivery and construction of 22 wind turbines in Poland for the country's biggest wind farm project.
Reliance Communications rose 8% after the wireless carrier increased mobile phone call prices by about a quarter in four telecom zones.
The market breadth was positive on the BSE. 1,815 stocks advanced while 1,103 stocks declined.