The BSE Sensex on Tuesday surged past the psychologically key level of 27,000 to a third consecutive record high as blue-chips such as HDFC Bank gained after recent data raised hopes about the economy.
The BSE milestone comes a day after the broader Nifty surpassed the 8,000 level for the first time, providing a further psychological lift that has made India the best performer this year in dollar terms in Asian equities.
Traders attributed the gains on Tuesday to data showing the balance of payments was in surplus for a third straight quarter, while current account deficit widened but stayed within comfort.
The data comes after a report last week showed that the economy grew a faster-than-expected 5.7% in the April-June quarter, sparking hopes the election of Prime Minister Narendra Modi would usher in a period of economic renewal.
In addition, easy global monetary policies are helping push funds into emerging markets. Overseas investors bought Indian shares worth 5.54 billion rupees ($91.53 million) on Monday, taking their total purchase to over $13 billion so far in 2014.
"With steady US bond yields despite ongoing taper and most other central banks in an easing mode, the global liquidity is strong and is looking for better investment avenues in emerging markets.
With domestic fundamentals on an improving trend, India is well positioned to receive global flows," said Harsha Upadhyaya, chief investment officer-equity at Kotak Mutual Fund.
The 30-share BSE Sensex rose as much as 0.8% to a record high of 27,082.85 before ending 0.57% higher.
The Nifty also hit a record high, rising as much as 0.92% to 8,101.95. It ended up 0.69%.
Blue-chip stocks led gains. HDFC Bank rose 2.1%, while ITC gained 1.2%. Reliance Industries rose 1%, while Bharti Airtel gained 4.2%.
Housing Development Finance Corp rose 0.7%, while Oil and Natural gas Corporation gained 1.1%. Cipla Ltd ended 5.3% higher after marking a record high of Rs. 575 after launching an anti-asthma inhaler in Germany and Sweden.
Other drug makers also gained. Sun Pharmaceutical Industries ended up 2.5%, while Lupin rose 1.5%.
However, metal stocks fell on continued worries around pending top court's hearing on September 9 about whether to cancel the allocations of coal blocks it ruled as illegal last week.
Jindal Steel and Power fell 3.2%, while Hindalco Industries lost 0.7%.