The BSE Sensex settled at a record closing of 40,267.62 after touching a intra-day all-time high of 40,308.90 points. Similarly, the Nifty50 on the National Stock Exchange closed at 12,088.55 after touching an all-time high of 12,103.05 points earlier in the day.
"Today Auto, FMCG, IT and Realty pulled the market to a new all-time high as they are trying to catch up the rally on the back of the expected rate cut by the Reserve Bank of India (RBI) and increase in demand from the domestic sectors," said Romesh Tiwari, Head of Research, CapitalAim.
"Traders can go long on these sectors with caution as the rally is limited to market leaders, and midcaps and smallcaps are still not matching the gains. Investors should avoid buying at this level," he added.
Reduction in interest rates is likely to infuse liquidity and boost consumption.
The Sensex ended 553.42 points or 1.39 per cent higher to close at 40,267.62 against the previous close of 39,714.20. It had opened at 39,806.86 and touched an intra-day low of 39,711.02 points.
The major contributors to the surge included Hero MotoCorp, Bajaj Auto and IndusInd Bank, which rose by 6.01 per cent, 3.92 per cent and 3.70 per cent, respectively.
The Nifty50 settled at 12,088.55, higher by 165.75 points or 1.39 per cent from its previous close.
Deepak Jasani of HDFC Securities said that decline in crude oil prices also helped the market sentiments and auto stocks surged on the back of strong sales in May.
Further, strong manufacturing data supported the investor sentiment. The Nikkei India Manufacturing Purchasing Managers' Index expanded to 52.7 per cent in May from 21.8 per cent in April.
Strong investment by Foreign Portfolio Investors (FPIs) also boosted the Indian indices on Monday. Data from the BSE website show that FPIs pumped in Rs 3,068.88 crore during the day, whereas the Domestic Institutional Investors (DIIs) sold stocks worth Rs 462.69 crore.
( With inputs from IANS )