The Sensex ended the day higher by 420 points, while the Nifty ended the day higher by 142 points. Among the stocks that rallied the most included high beta metal and banking stocks.
Jindal Steel jumped 7% on sustained buying, while Hindalco another metal stock rose more than 7%. Shares of India's largest real estate company DLF gained 7%, while JP Associates jumped by a similar margin.
Banking stocks were in the limelight once again with Axis Bank, ICICI Bank and Bank of Baroda all gaining more than 5%.
Among the losers in trade from the S&P CNX Nifty stocks were Ranbaxy Laboratories, Dr Reddy's Laboratories, ITC and Cipla.
Today's sharp jump can be attributed to increasing hopes of the government shedding policy inertia, particularly after biting the bullet and increasing diesel prices.
The Federal Reserve unleashing a fresh wave of liquidity in the form of quantitative easing also helped boost sentiments.
Asian markets too jumped sharply with most of the indices including the Singapore Strait Times, the Japanese Nikkei and the Korean Kospi ending the day higher by 1-2%.
Markets are expected to continue their momentum going into the next week.