The main 30-share BSE index added 84.87 points to end at 17,707.32, with 22 of its components gaining. The index rose as much as 1 percent intraday and has gained more than 14 percent this year.
The benchmark's 14-day Relative Strength Index was at 71.9, above the 70 mark that indicates stocks are trading in the overbought zone.
At this point in time liquidity is much more important than fundamentals, said Jagannadham Thunuguntla, head of research at SMC Investments and Advisors Ltd, adding that stocks may rise further from current levels.
Overbought markets can become much more overbought as long as liquidity is there.
Foreign funds have invested $3.6 billion in local equities so far this year, according to data from the Securities and Exchange Board of India.
TCS, India's biggest software services exporter, ended 1.8 percent higher. The company said it formed a joint venture with Mitsubishi Corp (8058.T) to set up a near-shore delivery centre in Japan.
Infosys (INFY.NS) and Wipro (WIPR.NS) ended up 1.53 percent each.
I think the environment has distinctly improved for IT firms, even though the customers may reluctantly take decisions but they are taking decisions, said Deven Choksey, CEO at brokerage K. R. Choksey.
By the end of the fourth quarter most of the IT companies will start giving revised outlook on the upside because the environment has improved overseas, he said.
India's $76 billion IT industry gets a majority of its revenue from providing technology services to overseas clients and counts the United States and Europe as its biggest markets.
Shares in Bharti Airtel (BRTI.NS), nearly a third owned by Southeast Asia's biggest phone company SingTel (STEL.SI), bucked the trend and ended 6.5 percent lower, after posting its eighth straight quarter of falling profits as it was hit by higher tax and interest costs.
Top private-sector lender ICICI Bank Ltd (ICBK.NS) dropped as much as 2.8 percent after nearly 15.9 million shares, or 1.4 percent of the bank's equity, changed hands in block deals on the National Stock Exchange. It ended down 1.8 percent.
Shares in top explorer Oil and Natural Gas Ltd (ONGC.NS), ended 1.1 percent lower. The company posted a 4.8 percent fall in its December quarter net profit.
Reliance Industries, which has the heaviest weight on the index, ended up 1.6 percent. The company said it is in talks with major Indian airlines to provide jet fuel infrastructure and transport services.
The 50-share NSE index ended 0.6 percent higher at 5,368.15. In the broader market, there were 1.8 gainers for every loser on a total volume of about 930.8 million shares.
World stocks as measured by MSCI were up 0.4 percent, while the emerging equities were 1.09 percent higher.
STOCKS THAT MOVED
* Jubilant Foodworks (JUBI.NS), which runs the Dominos Pizza chain in the country, gained 2.
* Thomas Cook India Ltd (THOM.NS) rose 20 percent to its daily upper circuit limit after its UK-based parent said it will look to sell a majority stake in the Indian travel operator.
* JK Lakshmi Cement (JKLC.NS) ended up 5.5 percent, a day after the cement and ready-mix concrete maker reported a more than 10-fold rise in December-quarter earnings.