The BSE Sensex was up for the second day in a row and closed at 18,206, up 218 points, led by blue-chips like ICICI, Infosys and RIL as investors continued to buy stocks at lower levels in the absence of any major negatives from the Middle East and Japan.
Besides, brokers said the world's leading investor Warren Buffett gave positive comments on the Indian market that boosted sentiment.
The market was also supported by stocks of sugar companies after government allowed exports of 500,000 metric tons of sugar.
The Bombay Stock Exchange benchmark index Sensex, which had gained 149 points yesterday, shot up another 217.86 points to 18,206.16 with buying in realty, banking, healthcare and metal sectors.
Similarly, the broad-based National Stock Exchange index Nifty rose by 66.40 points to 5,480.25, after touching the day's high of 5,484.95, as investors looked for bargains in a market that has underperformed so far this year.
The Sensex had slumped 11 per cent this year, the worst performer in Asia, on concerns that measures to curb price rise through high interest rates will limit growth.
The financial stocks led the upward move after the government proposed changing laws to ease limits on voting rights of the largest shareholders in lenders.
Private lenders ICICI Bank, HDFC Bank and Axis Bank were star performers and gained significant ground.
In the 30-BSE index components, 26 stocks ended higher, while four closed in losses. The two most-heaviest on the index, Reliance Industries and Infosys Technologies with their 23 per cent weightage witnessed sustained buying.
Bajaj Hindustan, the largest sugar producer, Balrampur Chini, Renuka Sugar, Rajshree Sugar, Eid Parrys, Rajshree Sugar, Uttam Sugar and Dhampur sugar were higher and boosted the market sentiment.
The realty sector index gained the most by adding 1.92 per cent to 2,118.77, followed by banking index by 1.85 per cent to 12,463.22.
As the buying activity spilled over a wide front, midcap index rose by 0.92 per cent to 6,603.80 and smallcap index by 0.65 per cent to 7,868.13.