At the closing bell, the blue-chip NSE Nifty 50 index and the benchmark S&P BSE Sensex were both up 1.56% at 17,176.60 and 57,633.65, respectively. Nifty 50 and Sensex witnessed their best day since Sept. 23.
Dr. Anthony Fauci, the top U.S. infectious disease official, told CNN on Monday that it does not look like Omicron has a "great degree of severity."
The Nifty bank index inched up to close 2.47% higher, its best day since May 21. Shares of Kotak Mahindra Bank were up 2.8% and Axis Bank up 3.6% after a report said the two private-sector lenders had emerged as top contenders to acquire Citi India's retail assets.
"The rise in U.S. markets after Fauci's comments have been one of the major factors driving Indian stocks higher today... We expect the Omicron variant will help in keeping the interest rates low", said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
"The valuations for Indian equities have come down from their recent peaks and are no longer in the expensive zone and this is giving some comfort to investor sentiment".
The Nifty metal index closed 3.13% higher with shares of state-owned miners Hindustan Copper Ltd and National Aluminium Co Ltd rising 10.1% and 7.1%, respectively. As per a media report, India's disinvestment department will soon seek cabinet clearance on the sale of both companies.
Heavyweights Tata Steel and state-run Steel Authority of India Ltd were up 3.61% and 4.7%, respectively.
Investors are eyeing the Reserve Bank of India's policy decision due on Wednesday, where it is expected to hold interest rates.
(Reporting by Shivani Singh in Bengaluru; Editing by Subhranshu Sahu and Shinjini Ganguli)
By Shivani Singh