Benchmark indices Nifty and Sensex were off to a flying start as both hit new highs on July 12 buoyed by a sharp rally in the IT index, specifically TCS, following its Q1 results. TCS shares have rallied nearly 3 percent in early trade.

The Sensex was up 0.91 percent at 80,628 and the Nifty was up 221.60 points at 24,537. About 1,923 shares advanced, 1,319 shares declined, and 104 shares unchanged.

Markets are also taking a cue from better-than-expected US inflation data, sparking hopes of a Fed rate cut by September.

The midcap and smallcap indexes too are extending their outperformance, rising 0.5 and 0.6 percent respectively at around 9:30 am. The midcap index has rallied over 10 percent since the start of June while the smallcap index has surged nearly 13 percent during the same period.

The IT index was the biggest gainer among the 13 sectors, rising nearly 2 percent with TCS leading the rally. The metal index also edged higher. Realty and bank indices fell the most.

"Positive inflation numbers are a welcome move for emerging markets, especially India. This is because money rotation is taking place in the US, highlighting investors' appetite to go to small-caps and midcaps, indicating that money will also flow to emerging markets when an interest rate cut happens," Aishvarya Dadheech, founder and Chief Investment Officer (CIO) at Fident Asset Management, told Sources

India's largest IT company, Tata Consultancy Services saw multiple brokerages issue bullish calls on the counter after the results. The company reported a consolidated net profit of Rs 12,040 crore for the quarter, a decline of over 3 percent from the previous quarter. Revenue from operations increased by 2.2 percent quarter-on-quarter to Rs 62,613 crore. "Today is an IT day and decent numbers can uplift the sentiment," he added.

Dadheech added that from a fundamental perspective, the outperformance shouldn't continue in the coming weeks. He predicts that most money will flow into large caps after the Union Budget on July 23. "The outperformance of mid and small cap compared to large cap would be difficult," he added.

The VIX, also known as the fear gauge, eased by 0.2 percent to be at around 13.97.

"The IT sector will be in focus as TCS Q1 results came in line with expectations. The overall strength is seen in the market as every dip is being bought, supported by strong domestic flows aided by FIIs buying in the last few days," Siddhartha Khemka, head of retail research at Motilal Oswal, said.

"Nifty can find support at 24,300 followed by 24,200 and 24,150. On the higher side, 24,400 can be immediate resistance, followed by 24,450 and 24,500," Deven Mehata, research analyst at Choice Broking said.

"The charts of Bank Nifty indicate that it may get support at 52,000, followed by 51,800 and 51,700. If the index advances further, 52,500 would be the initial key resistance, followed by 52,700 and 52,800," he added.

TCS, LTIMindtree, BPCL, Coal India, and ONGC were among the major gainers on the Nifty, while losers were Maruti Suzuki, Power Grid Corp, Apollo Hospitals, HDFC Life, and Divis Labs.