The BSE Sensex posted its best January rise since 1994, after gaining about 2 per cent on Tuesday, as foreign fund inflows showed signs of a revival and investors bet on a monetary easing to rekindle growth in Asia's third-largest economy.
Top lender State Bank of India surged 3.9 per cent, propelled by a $1.6 billion capital infusion plan, while No.2 ICICI Bank closed 5.9 per cent higher after it posted record quarterly profit, powering the main index to its biggest daily percentage gain in three weeks.
Tata Global Beverages jumped more than 10 per cent to its highest close in nearly six months, a day after Starbucks Corp, the world's largest coffee company, announced a deal with the Indian company to open cafes in India.
The benchmark 30-share BSE index closed 1.96 per cent higher at 17,193.55, with all but five of its components closing in the green. The index had slumped 2.15 per cent on Monday, snapping a six-session gaining streak.
"This is a rally driven by global cues, most importantly the development in Greece," said R.K. Gupta, managing director at Taurus Mutual Fund, referring to hopes of a deal this week to free up the next tranche of aid for Greece.
"But, I don't think this is going to last long. The market will look for triggers after the results season and there are already concerns like deficit building up for the budget."
India's finance ministry is expected to present its annual budget in March.
India's fiscal deficit during April to December was Rs 3.81 trillion, or 92.3 per cent of the full-year target, government data showed on Tuesday. During the same period in the last fiscal year, fiscal deficit was 44.9 per cent of the budgeted target.
The main index rose 11.3 per cent in January, its first monthly rise in three, and the best month since September 2010. It was the best January rise for the index since a 19.4 per cent rise in 1994.
Foreign funds have been net buyers of about $2 billion of Indian shares in January, after net outflows of about $500 million last year.
Shares in State Bank of India (SBI) gained Rs 76.35 to 2,061.60, their highest close since August 23 last year, cheering the federal government move to infuse $1.6 billion through a share purchase to shore up the lender's capital base.
However, SBI's Chief Financial Officer Diwakar Gupta told Reuters on Tuesday the bank would need to raise funds beyond the $1.6 billion assured by the government to meet rising demand for loans.
Shares in ICICI Bank rose Rs 49.95 to Rs 902.15, their highest close in three months , after the lender widely beat market expectations with a 20 per cent rise in its fiscal third-quarter profit.
Energy major Reliance Industries, India's most valuable company and the heaviest stock in the main index, closed 2.8 per cent higher at Rs 817.10, rebounding from a 3.1 per cent fall in the previous session.
The 50-share NSE index gained 2.2 per cent to 5,199.25. In the broader market, there were more than two gainers for every loser on total volume of about 756 million shares.
World stocks gained on Tuesday encouraged by hopes for a Greek bond deal this week and after European leaders backed a pact that is hoped will tackle the underlying causes of the region's debt crisis.
Stocks On The Move
* Shares in Coal India closed 2.5 per cent lower at Rs 327.20 after it rolled back on Tuesday an increase in prices under a new pricing policy.
* Drugmaker Glenmark Pharmaceuticals fell 5.4 per cent to Rs 295.10 after its December quarter net nearly halved.