The 30-share BSE Sensex gained nearly 400 points and the 50-share NSE Nifty more than 100 points due to rally across the globe after European leaders agreed to stabilise debt markets.
Jonathan Garner of Morgan Stanley believes that the emerging markets are discounting a recession scenario at the moment. In his opinion, allowing the European stability mechanism and direct recapitalization of banks are seen as positive developments. Garner expects 20-40% returns from the Indian equity market in the next six months.
The BSE benchmark rose 384.42 points or 2.26% to 17,375.18 and the NSE benchmark was up 113.70 points or 2.21% at 5,262.85.
Engineering and construction major by sales Larsen & Toubro, steel and power producer JSPL, state-owned power equipment manufacturer, private power producer Tata Power and top car maker Maruti Suzuki topped the buying list, rising 4-5%.
Stocks hit 52 week high - ITC rallied 3% and Vakrangee Software gained 2.7%.
Country's largest private sector lender ICICI Bank was up nearly 4% while its rivals State Bank of India and HDFC Bank gained 2.4% each.
Shares of Reliance Industries, India's most valued stock rose 2%. Software services exporters TCS and Infosys were up over 1.5%.
Among metals and mining stocks, Sterlite Industries and Hindalco shot up 3.5% each. Tata Steel went up 2% and Coal India was up 1%.
Auto stocks like Hero Motocorp, Tata Motors, Bajaj Auto and Mahindra & Mahindra 1-3%.
However, Cairn India tanked nearly 6% after sources said Cairn Energy PLC sold more than 6 crore equity shares of Indian unit. State-owned oil marketing company BPCL fell nearly 1% after these companies cut petrol prices by Rs 2.46 a litre.
The Indian rupee gained 52 paise to trade at 56.28 against the US dollar. Euro was the single currency that gained more than 1% to 1.26 against the US dollar on Friday after euro zone leaders agreed a deal to stabilise the region's debt markets and recapitalise its banks,