The BSE Sensex and Nifty jumped over 1 per cent on hopes of further rate cut by the Reserve Bank of India in its next monetary policy on June 2.
While the 30-share Sensex closed 1.33 per cent higher at 27,687.30, the 50-share Nifty ended the day's trade at 8,373.65 - up 1.35 per cent from its previous close.
Overall market breadth remained strong on the Bombay Stock Exchange as 1,675 stocks ended with gains while 1,046 closed with losses. Advances to decline ratio for Nifty remained at 46:3.
"Expectation of further rate cut by RBI coupled with rise in petrol and diesel prices uplift market mood on Monday," Ajay Jaiswal, president, investment strategies, head of research, Microsec Financial Services, said.
Barring the BSE Realty index (down 0.2 per cent), all other sectoral indices on the Bombay Stock Exchange ended the day in green. BSE Consumer Durables index, BSE Oil & Gas index, BSE Healthcare index and BSE FMCG index surged 2.16 per cent, 2.09 per cent, 1.54 per cent and 1.34 per cent, respectively, and stood among the list of top gainers.
"The sentiments were on optimistic note in response to the government statement that it has contained the fiscal deficit at 4 per cent of GDP for 2014-15, bettering its own financial targets. The recent technical rebound in index is in line with our expectation; however, sustainability seems difficult above 8500 in Nifty. So, traders should maintain extra caution in short term long trades and keep trailing stop losses with every rise. For fresh shorts, prefer counters from metal, PSU bank and realty space," Jayant Manglik, president, retail distribution, Religare Securities, said.
Among the Nifty stocks, Zee Entertainment, Dr Reddy's Laboratories, GAIL, BPCL and UltraTech Cement were the top performing stocks with gains of 3.75 per cent, 3.68 per cent, 3.51 per cent, 3.41 per cent and 3.37 per cent, respectively. However, Asian Paints, Tech Mahindra, Hero MotoCorp, Coal India and Tata Steel retreated by 3.25 per cent, 0.68 per cent, 0.35 per cent, 0.27 per cent and 0.16 per cent, respectively, and stood at the bottom of the performance chart of the index.
"We expect government to cut 25 basis points on June 2 and then reduce further 50 basis points in early 2016," Bank of America Merrill Lynch said in a research report.
According to NSDL, foreign portfolio stood net buyers in the capital markets, made net investment of Rs 35.98 crore and Rs 1,712.65 crore in the secondary and primary markets, respectively.
Companies such as Pidilite Industries, Repco Home Finance, Tata Power and Sakthi Sugars, may announce their earnings on Tuesday.