The NSE index closed at its highest in two years on Monday, near a key psychological level of 9,000, on hopes the ruling Bharatiya Janata Party (BJP) would win the elections in the northern state of Uttar Pradesh.
The broader NSE index ended up 65.9 points or 0.74 per cent at 8,963.45, its highest closing since March 2015, while the benchmark BSE index ended 215.74 points or 0.8 per cent higher at 29,048.19.
The elections are the world's largest this year and will have a key influence on Prime Minister Narendra Modi's chances of clinching a second term in 2019. Election results are due out on Saturday.
Sentiment was also boosted as the country moved a step closer towards launching a long-awaited new national sales tax from July after a panel of federal and state finance officials finalised two key Bills to be put before parliament.
“The expectation is that the BJP government will come into power in UP (Uttar Pradesh), and that is possibly driving the market a little more confident than before,” said Deven Choksey, managing director at KR Choksey Shares and Securities.
Among BSE sectoral indices, oil & gas index gained the most by 1.32 per cent, infrastructure 1.24 per cent, auto 1.24 per cent and power 1.16 per cent. On the other hand, IT index was down 0.19 per cent and consumer durables 0.02 per cent.
Top five Sensex gainers were RIL (+3.69%), Adani Ports (+2.48%), Tata Motors (+2.3%), Bharti Airtel (+1.81%) and State Bank of India (+1.79%), while the major losers were TCS (-0.87%), HUL (-0.7%), Dr Reddy's (-0.49%), HDFC (-0.44%) and Tata Steel (-0.41%).
Reliance Industries Ltd climbed as much as 4.3 per cent to its highest since May 2008, and was the top percentage gainer on the NSE index.
Financial stocks accounted for nearly half of the gains on the NSE index, with State Bank of India and Axis Bank Ltd leading the rise. Shares of SBI and Axis Bank rose up to 1.5 per cent each.
Coal India Ltd climbed as much as 2 per cent after its unit Central Coalfields approved share buyback of up to Rs 1,002 crore ($150.12 million), according to an exchange filing on Saturday.
IT stocks were among the top losers due to lack of clarity over processing of H1B visas in the United States.
US stock futures dropped and Asian shares were on the defensive on Monday as investors weighed the near-certain prospect of an interest rate hike in the United States this month against news of slower growth in China this year.
MSCI's broadest dollar-denominated index of Asia-Pacific shares outside Japan was up 0.2 per cent but Seoul shares were down 0.2 per cent, hitting their lowest levels since early February at one point.
The US Dow Jones Industrial Average had ended 0.01 per cent higher on Friday.