Banking stocks advanced on hopes of faster reforms in the sector ahead of a one-of-a-kind two-day industry meet that starts later in the day.
The Bank Nifty rose as much as 1.4 per cent to a record high of 19,010.60, surpassing the previous peak of 18,923.60 hit on December 23.
The HSBC Manufacturing Purchasing Managers' Index (PMI), compiled by Markit, rose to 54.5 in December from 53.3 in the previous month, its highest since end-2012, as new orders flooded in and factories kept price increases to a minimum.
Investors expect the Narendra Modi-led government to continue with the reforms process while fresh buying is seen ahead of the budget and December-quarter earnings.
The quarterly earnings season kick starts with Infosys results on January 9.
"People have started building positions ahead of the Budget. Overseas investment flow is again expected to be firm. The recent correction has provided valuation comfort. We expect the momentum to continue," said Suresh Parmar, head, institutional equities at KJMC Capital Markets.
As of 12.15 p.m.the benchmark BSE Sensex gained 1.32 per cent to 27,869.55, while the broader Nifty added 1.29 per cent at 8,391.
State Bank of India gained 0.96 per cent, ICICI Bank added 2.3 per cent, and HDFC Bank rose 1.6 per cent.
Auto stocks rose with Maruti Suzuki up 0.93 per cent and Tata Motors higher 2.05 per cent after the release of monthly sales numbers. Maruti reported a 20.8 per cent rise in monthly sales.
Copyright: Thomson Reuters 2015