However, during mid-session, markets witnessed some profit booking when Sensex and Nifty were trading at their highest levels in intra-day session. Later, positive opening of the European markets helped local markets regain strength.
The S&P BSE Sensex surged 266 points to close at 28,773 and the Nifty50 gained 90 points to finish at 8,867. Broader markets outshined benchmark indices- BSE Midcap and the Smallcap index surged 1%-1.4%.
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The US Federal Reserve left interest rates unchanged on Wednesday but strongly signaled it could still tighten monetary policy by the end of this year as the labor market improved further. The Fed said US economic activity had picked up and job gains were "solid" in recent months.
"As expected, the US Federal Reserve (Fed) left the interest rates unchanged as the underlying economic data continues to indicate a mixed picture. This comes in the backdrop of Fed indicating in January 2016 that it might have to raise rates atleast four times in CY 2016 and subsequently toning it down in August 2016 to two rate increases in CY 2016 depending on data being supportive for rate increases," said Ajay Bodke, CEO & Chief Portfolio Manager at Prabhudas Lilladher, in a note.
"We believe that India would be able to weather any such storm due to its strong macro-economic fundamentals. Any such correction induced by external factors should be used as an opportunity to buy Indian equities with a medium-term perspective", he added.
Globally, European shares edged higher mirroring gains in the US market and Asia, after the US Federal Reserve left interest rates unchanged and projected a less aggressive path for hikes next year and in 2018. Asian stocks edged higher tracking gains in US markets overnight.
Oil prices rose around 1% on Thursday, extending gains from the previous session after a surprise third consecutive weekly US crude inventory draw tightened the market.
Bach home, the rupee strengthened by 26 paise to 66.76 against the dollar at the Interbank Foreign Exchange on Thursday on selling of the US currency by exporters and banks amid foreign fund inflows.
Besides, regulator Sebi is considering allowing some categories of Foreign Portfolio Investors (FPIs) to directly trade in Indian markets, starting with debt segment.
Among sectors, rate-sensitive sectors like banks, auto and realty witnessed strong buying demand in trades today. However, defensive sectors like IT, FMCG and select pharma took a backseat in trades today.
Most metal shares edged higher as copper price edged higher in the global commodities markets. Shares of oil production and exploration firms rose as global crude oil prices rose.
Top gainers from the Sensex pack were Hero MotoCorp, L&T, NTPC, Maruti Suzuki, ICICI Bank, Power Grid and SBI, all surging between 2%-3%.
Larsen & Toubro gained 2% after the company entered into a pact, valued at $99.7 million (around Rs 660 crore), with Vietnam Border Guard for design and construction of high speed patrol vessels.
HDFC Bank on Thursday said it has raised Rs 6,700 crore by issuing bonds via private placement. The stock rose over 1%.
Mahindra & Mahindra (M&M) announced the proactive inspection of a fluid hose on all New Generation Scorpio & NuvoSport vehicles, manufactured till June 2016, respectively. Shares of M&M ended slightly positive.
On the losing side, IT shares witnessed maximum selling pressure as rupee strengthened past 67 against the dollar. TCS and Wipro slipped 0.4%-1%. Other notable losers were Lupin, Coal India, Axis Bank, HUL and Dr Reddy’s labs.
Among other shares, BPL rallied over 7.5%, extending its 42% surge in the past six trading sessions on the BSE, on the back of heavy volumes.
Aurobindo Pharma moved higher over 5% after the company announced that it has received tentative approval for Dolutegravir 50mg from US Food & Drug Administration (USFDA). The drug is used for the treatment of HIV.
Mandhana Industries was locked in lower circuit of 5% at Rs 44.65 on the BSE as the stock was trading ex-demerger of retail and trading business.
Shares of non-banking finance companies (NBFC) rallied by up to 11% on the BSE in late noon trade on the back of heavy volumes on renewed buying interest post the recent correction in their respective stock prices.
Ujjivan Financial Services, Capital First, PTC India Financial, Satin Creditcare Network, Bajaj Finance, Shriram Transport Finance, Bharat Financial Inclusion, Muthoot Finance and Mahindra & Mahindra Financial Services were up between 4% - 11% on the BSE.