The BSE Sensex and Nifty hit a record high on Friday, posting their biggest daily gains since September on hopes the opposition Bharatiya Janata Party would win a majority in elections ending next week, sending blue-chips such as ICICI Bank sharply higher.
India's five-week-long elections wind up on Monday, with exit polls from media organisations to be issued after the last votes are cast. Actual results will be unveiled on May 16.
Polls have consistently shown the BJP and its prime ministerial candidate Narendra Modi ahead, raising expectations the opposition party, which is seen by markets as being more investor- and business-friendly, will either win or come close to an outright majority.
Sectors seen most likely to benefit from a Modi win led the gains. Infrastructure shares such as Ambuja Cement surged, while the NSE's banking sub-index hit a record high on hopes a new government would frame policies that would aid the economy.
"As the election D-day is approaching, the markets are rallying on anticipation of a favourable outcome," said Dinesh Thakkar, chairman and managing director of Angel Broking.
"In spite of the rally so far, most cyclical sectors are still trading well below their average valuations, and in a longer economic upturn scenario, valuations still leave enough room for healthy upsides."
The benchmark BSE Sensex closed 2.91 percent higher at 22,994.23 points. The index earlier gained as much as 3.15 percent to a record high of 23,048.49 points, surpassing a high of 22,939.31 points hit on April 25.
The broader Nifty ended 2.99 percent higher at 6,858.80 points. The index rose as much as 3.18 percent in trade, to hit a record high of 6,871.35 points, beating a previous life high of 6869.85 on April 25.
Gains were broad-based, with 27 out of 30 listed companies in the benchmark BSE Sensex posting gains.
Banking stocks were among the leaders, with the National Stock Exchange banking sub-index gaining as much as 5.5 percent to a record high.
Infrastructure shares rose on hopes a BJP-led government would revive a stagnant investment cycle. Ambuja Cement (ABUJ.NS) gained 7.4 percent, the most in a day since Sept 10, 2013, while ACC Ltd (ACC.NS) rose 5.3 percent.
However, some exporters under-performed, as the rupee strengthened to above 60 per dollar to near one-month highs hit on Thursday. Sun Pharmaceutical Industries Ltd (SUN.NS) fell 0.07 percent while Tata Consultancy Services Ltd (TCS.NS) fell 0.1 percent.