The Finance Minister said on Friday that the government would withdraw higher taxes on foreign portfolio investors, as announced in the Budget, and also withdraw the surcharge on long- and short-term capital gains. Analysts said the removal of higher taxes on foreign investors and capital gains taxes are likely to boost the markets.

"Government announcements are in the right direction and from here on the Sensex and Nifty are likely to rise further," AK Prabhakar, head of research at IDBI Capital, told NDTV. "I think the Sensex and Nifty will touch record highs by December-end," he added.

All but one sector gauges compiled by National Stock Exchange ended higher led by a 4 per cent surge in the Nifty Financial Service index.

The Nifty Private Bank, PSU Bank, Realty, Banking and Media sectoral gauges also climbed between 3.5 per cent and 3.7 per cent.

State-run lenders surged after the government announced that it will upfront Rs 70,000 crore worth of recapitalisation for PSU banks, which was earlier spread over the complete financial year ending March 31.

On the other hand, the Nifty Metal index was the only sectoral loser. The index dropped nearly 1 per cent amid growing concerns about the escalation of the US-China trade war. Last Friday, US President Donald Trump announced additional duty on some $550-billion of targeted Chinese goods, hours after China unveiled retaliatory tariffs on $75 billion worth of American goods.

Mid- and small-cap shares also witnessed buying interest, with the Nifty Midcap 100 and Nifty Smallcap 100 index rose 1.6 per cent and 2.3 per cent respectively.

Adani Ports was top gainer in the Nifty 50 basket of shares. The stock rose 5.8 per cent to close at Rs 370. HDFC, Yes Bank, Bajaj Finance, UltraTech Cement, ICICI Bank, HDFC Bank and Bajaj Finserv were some of the other prominent gainers, ending between 4 per cent and 5.2 per cent higher.

On the flipside, JSW Steel, Vedanta, Tata Steel, Hero MotoCorp, Sun Pharma, Wipro and Reliance Industries were among the losers.