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Indian pedestrians walk on Dalal Street - Trader's Street - next to the Bombay Stock Exchange (BSE) in Mumbai on March 7, 2014.INDRANIL MUKHERJEE/AFP/Getty Images

India's benchmark indices are rallying very strongly on Thursday, led by a surge in banking heavyweights like ICICI Bank, State Bank of India (SBI) and HDFC Bank.

The rally pushed the indices to hit an all-time high with BSE Sensex rose as much as 395 points to 35,476.70 and the Nifty 50 index advanced around 98 points intraday to a new record high of 10,887.

The market turned bullish after the union finance minister announced that it will borrow only additional Rs 20,000 crore as against initial plan of Rs 50,000 crore.

End of December last year, the government breached its full-year fiscal deficit target for the financial year 2018 in November itself. Data released by the Controller General of Accounts (CGA) revealed that during the April-to-November period, the government's fiscal deficit was 112 percent of its Rs 5.5 trillion budgetary target for the current fiscal year.

Also, the market reacted positively after media reports stated that the government will soon allow 100 percent foreign direct investment in the banking sector.

Post this news banking stocks rose: ICICI Bank gains 2.7 percent, State Bank of India 2.6 percent, HDFC Bank 1.8 percent, Yes Bank Ltd 1.6 percent.

On Thursday, the Indian rupee was trading marginally higher against the US dollar propelled by gains in the equity market. The rupee opened at 63.86 a dollar, and was trading at 63.90 a dollar, down 0.02 percent from its previous day's close, Mint reported.