The benchmark Sensex gained for the first time in seven days, rising 248 points today after the RBI unexpectedly decided to keep key policy rates unchanged.
Realty, capital goods, oil & gas and power shares led all 12 BSE sectoral indices higher.
Heavyweight Reliance Industries, along with HDFC Bank and State Bank of India, helped to lift the Sensex as all but three of the 30 index stocks advanced.
BHEL and Tata Power topped the gainers on the index. Auto stocks Bajaj Auto and Hero Motocorp also moved up.
The S&P BSE Sensex opened lower and surged to the day's high of 20,917.57 after the RBI's Mid-Quarter Monetary Policy Review. It ended at 20,859.86, a rise of 247.72 points or 1.2 per cent.
The Reserve Bank of India kept the short-term lending rate unchanged 7.75 per cent, against expectations of a 25 bps increase. The cash reserve ratio was maintained at 4 per cent.
"The RBI unexpectedly kept the policy rate on hold in light of the weak growth backdrop and as it expects inflation to ease, partly as a result of food supplies normalising," Leif Lybecker Eskesen, Chief Economist for India & ASEAN at HSBC, said in a note.
"However, it also signalled that if that was not to materialise, it stands ready to tighten further to stabilise inflation expectations. It may well come to that."
In the previous six sessions, the Sensex had plunged by over 714 points, or 3.35 per cent, from its peak close of 21,326.42 on December 9.
The CNX Nifty on the National Stock Exchange flared up by 78.10 points, or 1.27 per cent, to end at 6,217.15. The SX40 on the MCX Stock Exchange closed up 135 points at 12,399.59.
Trent gained 10.74 per cent after UK retailer Tesco said it had applied to buy a 50 per cent stake in Trent Hypermarket Ltd and open supermarkets in India.
Biotechnology major Biocon, which signed a pact with Quark Pharmaceuticals to develop an ophthalmic drug, advanced 11.38 per cent.
