The 30-share BSE Sensex surged 483.53 points or 1.54 per cent to close at 31,863.08, a six-week high. The broader NSE Nifty advanced 126.60 points, or 1.38 per cent, to settle at 9,313.90.
Kotak Bank was the top gainer in the Sensex pack, rallying 8.59 per cent, followed by TCS (5.97 per cent), Infosys (5.67 per cent), ICICI Bank (4.97 per cent), HCL Tech (3.61 per cent) and ONGC (2.98 per cent).
On the other hand, Titan, HUL, PowerGrid, NTPC and L&T were among the top laggards, shedding up to 4.18 per cent.
A sharp recovery in the rupee also lifted the market mood, traders said. The rupee soared by 62 paise to settle at 76.06 (provisional) against the US dollar.
"Indian benchmark indices traded positive, boosted by financials and IT. Hopes of another stimulus package are giving some support to the markets.
"The rising cases of infections are a worry and markets are hoping that it will peak soon. The sustainability of this rally will depend on government measures to boost the economy and support the industries, once we emerge out of the lockdown," said Vinod Nair, Head of Research at Geojit Financial Services.
BSE IT, teck, bankex, finance, metal, auto and energy indices closed up to 4.85 per cent higher, while consumer durables, FMCG, power, utilities and telecom lost up to 1.43 per cent.
Broader BSE midcap and smallcap indices surged up to 1.35 per cent.
On the macro front, Fitch Ratings on Thursday slashed India's economic growth projections to 0.8 per cent in the current 2020-21 fiscal, saying an unparalleled global recession was underway due to the COVID-19 crisis.
Meanwhile, to ease fundraising through securities markets, regulator Sebi on Thursday relaxed the period of restriction to six months for raising further capital through buyback from the current one year.
This relaxation will be applicable till December 31, 2020, the Securities and Exchange Board of India (Sebi) said in a circular.
European markets were mixed ahead of a key Eurozone meeting regarding joint stimulus measures.
Bourses in Hong Kong, Tokyo and Seoul ended with gains, while Shanghai closed in the red.
International oil benchmark Brent crude futures rallied 8.64 per cent to USD 22.13 per barrel.
The death in India toll due to the COVID-19 pandemic rose to 681, while the number of cases in the country climbed to 21,393.
Global tally of the infections has crossed 26 lakh, with over 1.83 lakh deaths. ANS ABMABM