The Sensex reclaimed the 26,000 points mark as Raghuram Rajan's 50 basis points cut in repo rate saw banking and rate sensitive stocks rally.
Global cues also helped support prices with most of the Asian markets led by Japan trading higher. The Nifty was last trading 64 points higher at 7907 points, while the Sensex was trading higher by 230 points at 26,008 points.
Banking stocks also saw gains in trade with Yes Bank, State Bank of India, Punjab National Bank and Canara Bank leading the gainers.
IT stocks like Infosys and HCL Tech also lend support to the markets. Auto stocks which had fallen sharply in the last few trading sessions saw smart gains with Tata Motors and Mahindra and Mahindra among the gainers.
Real estate stocks were also higher following the RBI repo rate cut of 50 basis points with Phoenix and HDIL among the gainers.
Shares in Everready Industries were up 5 per cent after the RBI said that FIIs can now invest up to 49 percent in the company.
Housing Finance company stocks continued their solid run with LIC Housing Finance, Dewan Housing and GIC Housing among the gainers.
Meanwhile, markets across Asia were trading with gains led by the Japanese Nikkei and the Shanghai Composite.