The Nifty hit the 6,000 mark, the first time since January 6, 2011, after the US House of Representatives approved a deal on the "fiscal cliff", sparking broad-based buying. The NSE benchmark index took 495 trading sessions to regain the level.
Banking shares led the gainers as hopes of a January rate cut gathered steam. ICICI Bank rose 0.9 per cent, while State Bank of India rose 1.3 per cent.
At 11.25 a.m, the Nifty was at 6,002.80, up 52 points, while the BSE Sensex was at 19,741.69, a gain of 161 points.
Axis Bank, Bajaj Auto, Maruti Suzuki, ICICI Bank and Tata Motors were among the 23 BSE 500 stocks that hit new highs in trade today.
The markets continued their positive momentum, opening higher on Wednesday, on hopes of the final passage of the US bill meant to prevent Washington from pushing the world's biggest economy into recession.
Most major Asian markets, which were closed on Tuesday, gained today on the US deal with the Hong Kong benchmark rallying 1.7 per cent to 23,043.30. Australia's S&P/ASX 200 surged 1.2 per cent to 4,705.80. South Korea's Kospi jumped 1.2 per cent to 2,021.04.
The Sensex rose on Tuesday after the U.S. averted the looming 'fiscal cliff' in a last-minute deal with hopes of a rate cut by the Reserve Bank of India beginning to gather steam, leading to gains in bank shares. The Sensex gained 0.79 per cent, or 154.10 points, to end at 19,580.81 yesterday after earlier hitting its highest level intraday since April 27, 2011. The broader NSE Nifty rose 0.77 per cent, or 45.75 points, to end at 5,950.85. Foreign institutional investors net invested Rs 665 crore on Tuesday, according to provisional data from the Bombay Stock Exchange.
Tirthankar Patnaik of Religare Capital Markets said, “Our December 2013 Sensex target of 22,500 is based on a 14.5x target P/E multiple, which implies a 16 per cent upside from the current levels. Our top picks for 2013 are State Bank of India , Tata Motors and L&T.”
While Indian stocks are expected to remain firm in January tracking expectations of a rate cut by the Reserve Bank of India, negative local fundamentals, namely twin deficits and sticky inflation, may limit the outperformance in the near term.
"While the macro environment both domestically and globally does not inspire much confidence, at the micro level things are looking good," said Atul Kumar, Senior Fund Manager at Quantum Asset Management Company Pvt. Ltd.
The fiscal deficit is likely to exceed the target set by the government due to higher subsidy burden, which can also turn into a constraint for the RBI to cut rates, added Kumar.
Option traders see the probability of the 50-stock index Nifty inching closer to 6,200 levels in the January derivative series which ends on January 31.
The Sensex ended 2012 with its best gains in three years as strong foreign inflows and the government's fiscal and economic reforms outweighed worries about the domestic economy. Foreign investors pumped in more than $24.2 billion this year, marking the biggest inflows since a record $29.36 billion in 2010, on the back of cheaper valuations and government measures to further open up the retail and aviation sector.
(With inputs from AP, Reuters)