The Sensex ended the day higher by 318 points, while the Nifty gained 90 points in trade to end the day at 7367 points.
All major PSU banking stocks followed State Bank of India higher with Oriental Bank, Andhra Bank and IDBI Bank leading the list of gainers from the sector.
Other Nifty stocks that ended the day higher were Bhel, Bharti Airtel and Grasim. Jindal Steel surged 5 per cent on buying interest. ITC which declared numbers that were marginally better than expectations ended the day flat.
Notable Nifty losers in trade today were private sector banks IndusInd Bank and HDFC Bank. The later fell on reports that the government has rejected a proposal to hike FII limit in the bank.
Action once again shifted to the mid cap stocks with Jain Irrigation rallying 10 per cent on a good set of results, while other notable gainers were Siemens, Reliance Capital and Unitech.
Orchid Chemicals rallied 6 per cent after reports that the Company Law Board had dismissed Serum Institute's plea against Orchid's debt rejig process. Shares in SpiceJet gained after reports that the company was planning to sell some slots to Qatar Airways.
Meanwhile, markets in Europe were trading with gains with the German Dax, the French CAC and the UK's FTSE all higher in trade.