The BSE Sensex surged 467 points on Friday to its highest close in nearly three years as banks rose on value-buying while blue chips gained as foreign investors extended their buying streak to a tenth consecutive session.
Foreign institutional investors (FIIs) bought 11.09 billion rupees worth of Indian shares on Thursday, a tenth consecutive session of purchases that bought their total to 78.47 billion rupees, regulatory and exchange data show.
Sentiment was also bolstered after Life insurance Corp of India Chairman S.K. Roy told television channel CNBC TV18 the state-run insurer will invest 400 billion rupees in domestic equities in fiscal 2014.
Gains also tracked global shares which rose to a five-year high on expectations the Federal Reserve will keep its stimulus in place for longer following the confidence-sapping U.S. fiscal impasse.
"You can't argue with liquidity, the flow of money seems to be pushing concerns such as weak macro, RBI and earnings on the back burner," said Deven Choksey, managing director at K R Choksey Securities.
The Sensex surged 2.29 percent to end at 20,882.89, marking its highest close since November 2010. The index rose 1.7 percent for the week.
The broader Nifty rose 2.37 percent, or 143.50 points, to end at 6,189.35, marking its biggest single-day percentage gain in a month. It rose 1.5 percent for the week, notching up a third consecutive weekly gain.
Banks were among the leading gainers, sending the NSE bank index up 3.95 percent. The bank index fell 17.2 percent in the September quarter.
ICICI Bank Ltd (ICBK.NS) jumped 4.6 percent, while HDFC Bank Ltd (HDBK.NS) rose 3.4 percent.
Blue chips also gained, with Reliance Industries Ltd (RELI.NS) rising 2.9 percent while Tata Steel Ltd (TISC.NS) surging 6.1 percent.
Larsen & Toubro Ltd (LART.NS) rose 4.2 percent. The company after market hours reported a 7 percent rise in quarterly profit, beating analyst estimates, as it booked increased revenue despite a weak domestic economy.
Housing Development Finance Corporation Ltd (HDFC.NS) rose 3.1 percent and Zee Entertainment Ltd (ZEE.NS) ended 1.4 percent higher ahead of their July-September earnings results on Monday.
Sesa Sterlite Ltd (SESA.NS) rose 5.8 percent after UBS initiated coverage of the stock with a "buy" rating and a target price of 220 rupees, citing upcoming earnings drivers including stake purchase in cash-rich subsidiary Hindustan Zinc Ltd (HZNC.NS).
Some investors also bought defensive sectors such as drugmakers and consumer good stocks expecting uncertainty ahead of the RBI's policy review at the end of the month, where it is largely expected to raise the repo rate by 25 basis points, its second consecutive monthly hike.
Lupin Ltd (LUPN.NS) gained 0.9 percent, while Sun Pharmaceutical Industries Ltd (SUN.NS) ended 1.9 percent higher.
In consumer goods stocks, ITC Ltd (ITC.NS) rose 2.6 percent.
However, among decliners, Wockhardt Ltd (WCKH.NS) fell 0.7 percent after Britain's Medicines and Healthcare products Regulatory Agency recalled five prescription-only drugs made by the company after it found deficiencies in manufacturing procedures at its Chikalthana factory.