Positive global cues coupled with the government's efforts to solve a tax dispute with foreign investors led to the 30-scrip Sensitive Index (Sensex) gaining 402 points or 1.50 percent on Monday.
The wider 50-scrip Nifty of the National Stock Exchange (NSE) also made healthy gains during the day's trade. It closed the day's trade up 133.75 points or 1.63 percent at 8,325.25.
The Sensex of the S&P Bombay Stock Exchange (BSE), which opened at 27,249.42 points, closed the day's trade at 27,507.30 points, up 401.91 points or 1.48 percent from the previous day's close at 27,105.39 points.
The Sensex touched a high of 27,544.24 points and a low of 27,231.28 points in the intra-day trade.
"Sensex has continued its bounce-back from the lows of the previous week. For today, the global cues were positive. The euro markets ended strongly on Friday on the back of a more decisive-than-expected UK election outcome by the centre-right Conservative party," said Sanjeev Zarbade, vice president for private client group research with Kotak Securities.
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Zarbade said that even the April jobs data in the US also came in strong thus easing concerns of a slowdown. In addition to this, China cut its interest rates to bolster sagging economic growth.
"So far as India is concerned, passage of GST/land bill would be a strong trigger for the market in the immediate term."
According to Vinod Nair, head of fundamental research with Geojit BNP Paribas Financial Services, post the correction during the last two months, India's valuation has corrected.
"Based on historical valuation it provides discount comparing to immediate EMs (emerging markets) peers. The near-term risks are understanding the extend of further earnings downgrade and outcome of parliament session," Nair said.
"But even though India's economy will be better in the medium-term led by real incomes and higher government spending. Hence the big question is timing which is always never know, thus we recommend to construct positively, suggest sectors like PSUB (public sector undertaking banks) and IT (information technology)."
In Monday's trade, healthy buying was observed in banking, automobile, healthcare, metals, consumer durables, capital goods, IT and oil and gas sectors.
However, stocks of fast moving consumer goods (FMCG) came under heavy selling pressure.
The S&P BSE bank index which rocketed by 488.63 points, followed by automobile index which zoomed by 462.54 points, healthcare index augmented by 274.18 points, metal index increased by 250.42 points.
The S&P BSE consumer durables index gained by 226.10 points, capital goods index rose by 190.64 points, IT index was higher by 141.43 points and oil and gas index was up by 115.89 points.
However, the S&P BSE FMCG index was down by 24.96 points.
The major Sensex gainers on Monday were: State Bank of India (SBI), up 5.44 percent at Rs.276.05; Vedanta, up 5.34 percent at Rs.229.85; Hero MotoCorp, up 3.59 percent at Rs.2,384.20; HDFC, up 3.16 percent at Rs.1,222.85; and Tata Motors, up 3.15 percent at Rs.529.65.
The losers were: Hindustan Unilever, down 3.34 percent at Rs.864.70; ITC, down 0.53 percent at Rs.326.30; Bharti Airtel, down 0.41 percent at Rs.396.30; and Wipro, down 0.06 percent at Rs.540.80.
Among the Asian markets, Japan's Nikkei was higher by 1.25 percent, while China's Shanghai Composite Index gained by 3.05 percent and Hong Kong's Hang Seng moved up by 0.51 percent.
In Europe, London's FTSE 100 was up by 0.15 percent. However, France's CAC 40 went down by 1.49 percent and Germany's DAX Index was lower by 0.52 percent at the closing in the Indian markets.