The prospects of a gradual approach to US rate hike removed a big uncertainty as the Sensex today added 188 points to close at a 2-year high of 29,586 and the Nifty hit a new peak of 9,154, driven by a flush of capital.
The NSE index rose to a record 9,158.45 before ending the day at a new closing high of 9,153.70, up 68.90 points, or 0.76 per cent, breaching its earlier 9,087 scaled on March 14.
The Federal Reserve, as expected, hiked the key interest rate by a quarter percentage point, but gave a more dovish outlook for future hikes and painted a positive picture of the world's largest economy.
The 30-share BSE index settled higher by 187.74 points, or 0.64 per cent, at 29,585.85. This is the highest closing since January 29, 2015, when it closed at 29,681.77.
The gauge had shed 44.52 points in the previous session.
Continued foreign inflows have sparked a rally in the rupee, which hit a fresh 16-month high of 65.41 against the dollar, stoking buying activity.
"Though the record peaks have kept the investors nervy, the prospects of a gradual US rate hike look to have improved the risk appetite, which is also reflected in the marked decline in volatility. This should also mean, save a negative surprise from monsoon forecast, Q4 numbers should prompt investors to be forward looking," said Anand James, Chief Market Strategist, Geojit Financial Services.
The buoyancy reflects a firming trend in Asia and Europe, tracking overnight gains in the US after the Federal Reserve went for a rate increase.
Buying activity was so strong that all sectoral indices, led by metal and infrastructure, ended in the green.
Second-tier stocks attracted heavy buying interest from retail investors and notched up handsome gains. The BSE midcap and smallcap indices closed up 1.55 per cent and 1.07 per cent, respectively.
Hefty buying by foreign institutional investors, the main market mover, was seen across the board. FIIs bought shares worth Rs 1,141.13 crore yesterday, as per provisional data.
Key indices in China, Hong Kong and Japan rose up to 2.08 per cent. In Europe, major shares ran up in early session.
Adani Ports jumped maximum (4.73 per cent). Tata Steel surged 4.30 per cent amid reports that the company will finalise a decision on UK business merger by May.
Other major Sensex movers were Bajaj Auto (2.31 per cent), Asian Paints (2.23 per cent), Infosys (1.62 per cent), Tata Motors (1.49 per cent) and HDFC (1.47 per cent).
However, Hero MotoCorp dropped by 1.32 per cent, followed by Bharti Airtel, RIL and Coal India.
The metal index went up 2.84 per cent. Power, consumer durables, infrastructure and capital goods too advanced.
Foreign funds purchased a net Rs 1,141,13 crore yesterday,
according to provisional data.
Of the 30-share Sensex pack, 24 ended higher while 6 declined.
The market breadth remained positive as 1,798 stocks ended higher, 1,031 declined and 183 remained flat.