The Reserve Bank of India cut its reverse repo rate by 25 basis points (bps) in a bid to push banks to lend more, just two weeks after its dramatic 90-bps cut.
Already reeling from a slowdown in economic growth, India earlier this week extended its lockdown to curb the spread of the coronavirus that has shuttered thousands of businesses and sparked wild swings in financial markets.
The virus has infected over 13,300 in the country and 437 have died, according to government data.
Some analysts said markets were pricing in the possibility of a staggered relaxation of the nationwide lockdown post April 20.
The NSE Nifty 50 index closed 3.05pc higher at 9,266.75, while the benchmark S&P BSE Sensex rose 3.22pc to 31,588.60. Both the indexes finished the holiday-shortened week more than 1pc higher.
A rise in equities across the globe as US outlined plans to gradually reopen its coronavirus-hit economy also aided the domestic investor sentiment.
The pan-European STOXX 600 index was up 2.6pc after the United States joined a handful of other governments to issue guidelines to re-start their economies.
ICICI Bank Ltd rose 9.7pc and was the biggest boost to the indexes, while peer Axis Bank Ltd rose 14pc.
The Nifty banking index added 6.6pc, while the financials index closed 5.46pc higher.
But FMCG stocks took a beating, with the Nifty FMCG index slipping 1.05pc.