The broader markets also traded in line with frontline indices amid strong market breadth.
The market gained for the fourth consecutive session and ended at nearly four-month high on July 6, with the Nifty50 getting past its resistance point.
The BSE Sensex jumped 465.86 points or 1.29 percent to 36,487.28 while the Nifty50 climbed 156.30 points or 1.47 percent to 10,763.70. The rally saw indices jump 42 percent from their lows on March 23.
The broader markets also traded in line with frontline indices amid strong market breadth.
The Nifty midcap and smallcap indices over 1.6 percent each and about two shares advanced for every share declining on the National Stock Exchange.
Here are five key factors driving the rally:
Global cues
Stocks in Asia-Pacific traded strong despite rising novel coronavirus infections. China's Shanghai Composite broke its 850-day long-term moving average and climbed 5.7 percent.
The lower level of infections in China compared to other nations and hope of further stimulus could be supporting factors.
Hong Kong's Hang Seng was up 3.8 percent while Japan's Nikkei gained 1.83 percent and South Korea's Kospi rose 1.65 percent.
Vaccine hope
The optimism surrounding vaccine research also lifted market sentiment. Last week, Bharat Biotech in collaboration with the Indian Council of Medical Research and National Institute of Virology began human trials of Covaxin, India's first indigenous vaccine.
Zydus Cadila also received approval from the Indian drug regulator for human clinical trials for its indigenously developed plasmid DNA vaccine candidate for COVID-19 (ZyCoV-D).
Last week, European Commission granted conditional approval for Gilead's antiviral drug remdesivir.
Hopes of recovery
The recent economic data indicated that the worst is over and the economic activity is stabilising on month-on-month basis. Auto sales (especially two-wheeler and tractors) indicated that the rural economy is progressing well while Markit Manufacturing PMI was much above the consensus of 37.5 to 47.2 in June from 30.8 the previous month.
Sectoral indices rally
All sectoral indices, barring pharma, gained momentum. The Nifty Bank, Auto, Metal, Financial Services, IT, Energy and Realty indices gained over 1-3 percent. FMCG index was up 0.4 percent.
Overall, these indices have gained 32-55 percent from their March lows.
Technical View
The Nifty50 formed a bullish candle on daily charts, same as the previous week.
As the index has achieved its technical resistance of 10,700-10,750, experts feel that the market could see some pause in rally now.
"The markets might want to take support around the 10,650-10,750 area and then resume its uptrend. If we close below 10,650 in coming sessions, we might fall to levels closer to 10,400. Until then the trend remains positive and we could attempt 11,000 on the Nifty," Manish Hathiramani, Proprietary Index Trader and Technical Analyst at Deen Dayal Investments said.