As tensions in the Middle East seem to subside for the time being, gold and crude prices took a dip, thereby, boosting investors' sentiments.
India, which imports a large chunk of its crude requirements, would have suffered due to elevated levels of oil prices.
At present, India imports over 80 per cent of all its crude oil needs, and thereby any surge in global prices has a cascading impact in the country's inflation.
In macroeconomic terms, a 10 per cent rise in crude oil prices has the potential to push retail inflation by up to 20 basis points, apart from impacting forex reserves, the current account deficit and the rupee strength against the US dollar.
Besides, the Centre's outreach efforts to meet India Inc. representatives and economists enhanced investors' risk-taking appetite.
Prime Minister Narendra Modi met economists at Niti Aayog on Thursday to be apprised directly about what ails the Indian economy and to find the solution from the industry and experts themselves.
He has in recent times held two mega meetings taking feedback from top industry captains, as well as over 10 meetings with different industrialists.
The S&P BSE Sensex on Thursday jumped over 630 points, tracking gains on the Asian markets.
The barometer index, Sensex, closed the day's trade at 41,452.35, higher by 634.61 points or 1.55 per cent from the previous close of 40,817.74 points.
It had opened at 41,216.67 and touched an intra-day high of 41,482.12 and low of 41,175.72 points.
The Nifty50 on the National Stock Exchange closed at 12,215.90 points, higher by 190.55 points or 1.58 per cent from the previous close.
"Expectation for initiatives to boost growth in the upcoming Budget and easing tensions in the Middle East seem to have cheered the investors," said Vinod Nair, Research Head, Geojit Financial Services.
"The government is poised to bring initiatives and policy measures to support economic growth to benefit equities for the long term," he added.
HDFC Securities' Retail Research Head Deepak Jasani said: "Indian markets rallied and touched high as tension between US and Iran eased. Volume in cash market were higher while the F&O markets on the weekly expiry day denotes a lot of squaring up activity."
"Momentum in the market continues to be positive but gains from here could be gradual."
Sectorally, top gainers included BSE realty, auto, bankex and consumer durables indices, whereas BSE IT index was the top losers.
In terms of Brent crude oil prices, subdued tension levels pulled the prices lower to $65.25 per barrel, 0.29 per cent lower when compared to the previous closing.
Similarly, on the Multi Commodity Exchange (MCX), the February contract of gold traded at Rs 39,783 per 10 gram, lower by 0.82 per cent or Rs 327 from its previous close.
The US-Iran tensions seem to have calmed down after Iranian Foreign Minister Mohammad Javad Zarif said that its air strikes on the US bases in Iraq had concluded.
( With inputs from IANS )