After moving between 28,070.81 and 28,299.92, the Sensex settled up 84.97 points, or 0.30 per cent, at 28,226.61. This is the highest closing since October 4 last when it closed at 28,334.55.
The index had rallied 486 points yesterday, spurred by a series of market-friendly budget
The 50-share NSE Nifty finished higher by 17.85 points, or 0.20 per cent, at 8,734.25 after trading between 8,685.80 and 8,757.60.
"The turnaround in IT and pharma stocks and the weakness in the dollar after an unchanged US Fed policy have given some impetus to the market," said Vinod Nair, Head of Research, Geojit BNP Paribas Financial Services.
The rupee closed higher at 67.37 after the US Fed decided to keep rates unchanged and struck a cautious tone about policy tightening.
Market stayed in a tight range during the first half due to profit-booking after Wednesday's sharp rally and a weak trend in Asia, but revival in buying interest among domestic institutional and retail investors led stocks higher.
The Budget's significant allocation to infrastructure and focus on affordable housing, rural development and agriculture contributed to the rally.
Coming up next is RBI's monetary policy next week which is being closely tracked by investors.
Software stocks such as Infosys, TCS and Tech Mahindra were back in demand as they gained by up to 2.85 per cent.
Drug major Dr Reddy's walked away with top honour by jumping 3.31 per cent followed by Sun Pharma (2.64 per cent). Overall, 15 scrips out of 30 Sensex stocks ended higher.
However, some like Hero MotoCorp, M&M and Tata Motors in the auto sector faced selling following disappointing January sales numbers.
Foreign portfolio investors (FPIs) net bought shares worth Rs 92.73 crore while domestic institutional investors (DIIs) lapped up shares worth a net Rs 1,133.74 crore yesterday, as per provisional data.
Buying by retail investors continued in broader markets, helping the small-cap and mid-cap indices gain up to 0.95 per cent.
Among the BSE sectoral indices, consumer durables gained the most by 2.18 per cent, followed by healthcare 1.79 per cent, IT 1.78 per cent and technology 1.68 per cent.
Other Asian markets showed a weak trend, with Hong Kong's Hang Seng ending 0.61 per cent lower and Nikkei losing 1.22 per cent.
European markets were in a mixed shape in their early trade, with Frankfurt rising 1.08 per cent and London's FTSE down 0.11 per cent. Paris CAC 40 shed 0.23 per cent.
Investors waited for the outcome of Bank of England rate meeting. China market remained closed for the final day of Lunar New Year holiday.
The market breadth remained positive as 1,582 shares ended higher, 1,222 closed lower while 134 ruled steady.
The total turnover on BSE amounted to Rs 3,836.14 crore, higher than Rs 3,797.88 crore in the previous session.
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