The BSE Sensex hit a record high while the NSE index closed just off its all-time high, as foreign investors on Wednesday extended their buying streak to a 14th consecutive day for a net of about $900 million.
Foreign investors have bought nearly $5 billion worth of debt so far in 2014.
The strong buying comes despite upcoming general elections which kick off in early April and a lingering uncertainty sparked by the U.S. Federal Reserve's steady winding down of its monetary stimulus.
These factors are keeping some analysts cautious about whether the rupee can extend gains.
To take a view that INR will continue to gain is wrong.The CAD (current account deficit) is in control thanks to the ban on gold imports and capital flows are steady due to the global stability. But any political or economic issue anywhere and we can start to see capital outflows.
The partially convertible rupee closed at 61.11/12 per dollar compared with 61.75/76 on Wednesday. The unit rose as high as 61.10, its strongest since December 10.
The rupee rose 1 per cent on the day, its biggest single-day gain since November 18.
Sentiment was also helped by data late on Wednesday that showed India's balance of payments swung back into surplus during the October-December quarter, while the current account deficit narrowed sharply, helped by government curbs on gold imports.
Some traders cited dollar inflows from the Vodafone Group's plans to buy out minority partners in its domestic unit in a deal estimated at $1.6 billion.
In the offshore non-deliverable forwards, the one-month contract was at 61.44 while the three-month was at 62.13.