Benchmark BSE Sensex rose by about 322 points to close above the 60,000 level on Monday tracking gains in banking, IT and energy stocks amid positive global equities.
Rising for a third straight day, the 30-share barometer closed higher by 321.99 points or 0.54 per cent at a three-week high of 60,115.13.
As many as 21 of the index constituents closed in the green. After a strong opening, the index touched a day's high of 60,284.55 and a low of 59,912.29.
The broader NSE Nifty spurted by 103 points or 0.58 per cent to settle at 17,936.35 points, with 36 of its constituents ending with gains.
In the three-day rally, Sensex advanced 1,086 points, while Nifty gained nearly 312 points.
Foreign fund buying, crude oil prices trading near USD 93 level, and macro data reflecting the strong growth recovery, boosted investor sentiment.
Gains in global equity markets also propped up the local equities.
"Domestic economy is witnessing strong vigour and the same is assisting a steady growth in Indian equities. A 15.5 per cent YoY increase in bank credit during August suggests that the economy is recovering rapidly," Vinod Nair, Head of Research at Geojit Financial Services said.
Investors were also awaiting key consumer inflation and industrial production data to be released after market hours.
Due to rising food prices, domestic inflation figures are predicted to show a gradual rise from 6.7 per cent in July, which could add volatility in the short-term, Nair said.
Among Sensex stocks, Titan rose the most by 2.39 per cent, followed by Axis Bank, Tech Mahindra and Tata Steel. Gains in RIL, Infosys, TCS, ICICI Bank, Bajaj Finance and L&T aided the rally.
HDFC fell the most by 0.43 per cent, while HDFC Bank and Nestle also declined.
"Markets started the week on a firm note and gained over half a per cent, in continuation of the prevailing trend. Firm global cues triggered an upbeat start in Nifty and it almost retested the previous high of 18,000 mark in early trade and remained range-bound thereafter," Ajit Mishra, VP - Research, Religare Broking Ltd said.
Strong traction in the realty, IT and media pack combined with noticeable buying on the broader front kept the participants busy, Mishra said.
"The most important bullish factor that has caused and is sustaining India's market outperformance is the strong growth recovery underway in India now. RBI's report which puts bank credit growth now running at 15.5 per cent is an endorsement of this fact," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said.
Bank Nifty which has outperformed Nifty by 11 per cent is a reflection of this strong under current in the banking segment, Vijayakumar said.
The BSE Midcap rose by 0.52 per cent while BSE Smallcap gained 1 per cent.
All the sectoral indices closed in green with BSE Realty spurting the most by 2.23 per cent. Consumer Durables rose by 1.40 per cent, BSE Teck by 1.16 per cent, BSE IT by 1.3 per cent and Utilities by 1 per cent.
Of the 3,759 stocks traded on BSE, 2,165 scrips advanced and 1,428 declined while 166 closed unchanged.
Among global markets, shares climbed in Europe and Asia after last week's strong close on Wall Street snapped a three-week losing streak.
Many Asian markets were closed for holidays. The US futures rose while oil prices turned higher.
While Tokyo's Nikkei 225 gained 1.2 per cent, markets in Shanghai, Hong Kong and Seoul were closed for holidays.
Brent crude oil advanced 28 cents to USD 93.12 a barrel. Foreign institutional investors (FIIs) were net buyers to the tune of Rs 2,132.42 crore on Friday, as per exchange data.