The BSE Sensex rose to its highest level in 14 months while the rupee rose to a four-month high after the government cut withholding taxes on overseas borrowing by local companies, sparking hopes of more reform measures in the coming days.
Gains were also aided after a key regional party said it will continue to provide outside support to the country's ruling coalition.
The benchmark BSE Sensex rose 2.3 percent as of 12.32 pm, after earlier hitting its highest since late July 2011.
Banks rallied on hopes additional measures will include action that would benefit the sector. State Bank of India rose 4.6 percent.
The rupee rose to as much as 53.51 to the dollar, its highest since May 15.