Buoyed by the Iran nuclear deal and foreign investors turning net buyers in the current month, the BSE Sensex hit a three-month high in morning trade on Thursday.
The Sensex was trading at 28,332 at about 12.15 pm, an increase of 135 points, while the 50-scrip Nifty was hovering at around 8,567, up 44 points.
An analyst says the country is better placed than other emerging economies and poised to see more foreign investments coming its way.
"India is on a relatively much better wicket and that is what is going to drive inflows to this market," R Sreesankar, head of institutional equities at Prabhudas Lilladher, told Bloomberg TV India. "The incremental liquidity is coming here."
The rally is being led by bank and energy stocks, which are surging on a slew of good news both on the domestic front and geo-political developments.
The rally in bank stocks is being attributed to the government considering levying anti-dumping duty on steel imports.
This is expected to bring relief to steel companies that are facing the heat, according to moneycontrol.com. Banks have a huge exposure to steel companies.
Axis Bank has surged 2.8%, while Yes Bank gained 1%.
Another positive development seems to be a proposal to dispense with the difference between various types of foreign investments with a composite limit on foreign direct investments. The proposal is likely to be considered by the Union cabinet on Thursday, moneycontrol added.
Kotak Mahindra and HDFC Banks are the other banking stocks that have gained.
Public sector lender State Bank of India has gained 0.5%, while ICICI Bank share is up 0.8%.
As for news-specific stocks, Pipavav Defence and Offshore Engineering Company has gained about 8% in response to a report that the company has been shortlisted for a naval frigate order by the Russian government, says NDTV.
On Wednesday, the BSE Sensex had closed at 28,198, up 265 points from its previous close, while the Nifty gained 69 points to close at 8,523.
