The NSE index jumped more than 2.6 per cent on Monday, its biggest daily percentage gain in more than a year, as a rally in global markets boosted risk appetite and sent the stocks of recently battered lenders such as State Bank of India sharply higher.
All-round buying in frontline shares led by metal, realty, capital goods, industrials, energy and bank sectors boosted the domestic sentiment.
The second-line, mid-cap and small-cap shares, also witnessed heavy buying.
Despite caution in view of muted macroeconomic data, investors resorted to buying from oversold positions amid firm global cues.
The 30-share BSE index Sensex ended higher by 568 points or 2.47 per cent at 23,554.12 and the 50-share NSE index Nifty ended up by 182 points or 2.61 per cent at 7,162.95.
Among BSE sectoral indices, metal index rallied the most by 8.79 per cent, followed by capital goods 6.73 per cent, realty 6.17 per cent and PSU 4.95 per cent.
Top five Sensex gainers were Tata Steel (+13.01%), L&T (+9.06%), State Bank of India (+7.94%), Adani Ports (+7.02%) and Axis Bank (+6.83%), while the only three losers were Bharti Airtel (-2.03%), HUL (-0.73%), and HDFC (-0.13%).
State Bank of India shares surged nearly 8 per cent after falling almost 9 per cent last week. India's biggest lender on Friday reported the biggest fall in its quarterly profit in nearly five years as bad loan provisions jumped.
Stocks of other state-owned lenders that fell heavily last week also rebounded sharply. Bank of Baroda jumped as much as 15 per cent on Monday after Chief Executive P.S. Jayakumar said the bank expected a "fair bit of stability" in its asset quality in the quarters ahead.
Coal India rose about 4 per cent on hopes it would also announce a dividend after state-owned miner NMDC Ltd declared its first interim dividend on Friday.
Adani Ports and Special Economic Zone rose as much as 5.93 per cent after Macquarie upgraded it to 'outperform' from 'neutral', saying the stock amply prices in risks on volume growth after a 50 per cent correction in last six months.
Exchanges operator Financial Technologies declined 16.5 per cent to a record low of Rs 75.10 on reports that the Indian government had ordered a merger with National Spot Exchange
Asian stocks rebounded from recent weakness as fears over global economic slowdown eased and as U.S. crude prices rallied from more than 12-year lows. China's central bank also fixed the yuan higher as markets in Asia's largest economy returned from a week-long holiday.
The gains, which follow rallies in Europe and the Wall Street on Friday, were sparked after Indian indexes last week posted their biggest weekly losses since July 2009 due to disappointing corporate earnings and weak global markets.
"Markets were in a bit of an oversold territory so it's a pullback that we are seeing today," said Alex Mathews, head of research at Geojit BNP Paribas.
Mathews added that markets will largely be driven by global cues and the upcoming Budget on February 29.
Meanwhile, foreign portfolio investors sold shares worth Rs 398.37 crore on Friday.
A report by SMC Global said: "Asian stocks rebounded from a three-year low, led by Japanese shares, amid speculation losses that pushed global equities into a bear market were excessive. The yen dropped with gold as haven assets fell out of favour, while China's yuan jumped by the most since a dollar peg ended in 2005. US stocks snapped a five-day losing streak Friday and logged their largest daily gains so far this month, as battered bank and energy shares led a rebound at the end of a turbulent week."
World stocks rose on Monday as China’s central bank fixed the yuan at a much stronger rate and oil prices held on to recent gains, easing fears of global deflation.
Asian shares bounced to snap a five-session losing streak on Monday as a strong fix for China's yuan eased devaluation concerns and Shanghai stocks returned from the Lunar New Year holidays with only modest losses.
The Shanghai Composite Index eased 2.2 per cent in its first session since February 5, a relatively benign move given the wild swings seen worldwide recently.
Still, rallies in European bank stocks and on Wall Street on Friday helped soothe jitters enough for MSCI's broadest index of Asia-Pacific shares outside Japan to rise 1.2 per cent. That follows a loss of almost 4 percent last week.