The BSE Sensex and Nifty jumped nearly 1.5 per cent on Monday to record highs, surpassing their previous all-time highs hit just last week as lenders including ICICI Bank extended a recent rally boosted by strong foreign investor flows.
The Nifty ended 1.36 per cent higher after marking a lifetime high of 6,591.50, while the benchmark Sensex finished 1.38 per cent up after touching a record high of 22,074.34, surpassing their previous milestones hit on March 18.
Banks led the gains on optimism about a recovery in the domestic economy tipped to be growing at its lowest pace in a decade, and bets the Reserve Bank of India would keep interest rates on hold for now at its policy review on April 1.
The prospect that the general elections due to conclude by May will usher in a new government led by the opposition Bharatiya Janata Party is also aiding the gains, given market perceptions that the party has a more business-friendly stance.
Foreign investors have been particularly heavy buyers during the rally, with net purchases of $1.6 billion of shares so far this month, regulatory data showed.
"Near 7,000 level on Nifty (NSE index) is possible as macro sentiment is improving, inflation is subsiding," said G Chokkalingam, founder of research and fund advisory company Equinomics.
However, some cautionary voices also are emerging, especially in the near-term when volatility is expected ahead of the expiry of derivative contracts on Thursday.
"While the euphoria and the run-up in the equity markets driven by foreign inflows are positive, caution is warranted," Radhika Rao, an economist at DBS Bank in Singapore, wrote in a note on Monday.
"Inflation risks, high borrowing rates, a weak industrial sector and subdued consumption spending are amongst the main economic challenges facing the next government," Rao said.
ICICI Bank surged 3.7 per cent, State Bank of India gained 1.3 per cent while HDFC Bank gained 2.5 per cent after marking its record high of 752.90 rupees.
The sector has been one of the top performers this month, with the NSE's bank sub-index gaining about 15 per cent so far this month, outperforming the nearly 5 per cent gain in the Nifty.
Other blue chips Reliance Industries rose 1.9 per cent while ITC gained 1.1 per cent.
However, software stocks fell on profit taking and on fears strengthening rupee may hurt margins.
Infosys Ltd ended 0.6 per cent lower, HCL Technologies was down 1.7 per cent while Wipro Ltd fell 1.2 per cent.