The 30-share BSE Sensex soared 834.02 points or 1.72 per cent to close at 49,398.29. It was its biggest single-day gain since September 25, 2020, when it had climbed 835 points.
Similarly, the broader NSE Nifty rallied 239.85 points or 1.68 per cent to finish at 14,521.15.
Bajaj Finserv was the top gainer in the Sensex pack, jumping 6.77 per cent, followed by Bajaj Finance, HDFC, L&T, ICICI Bank, Sun Pharma and NTPC.
HDFC twins, Reliance Industries and ICICI Bank accounted for almost half of the benchmark's gains.
Only three Sensex components closed in the red -- Tech Mahindra, ITC and M&M, shedding up to 0.54 per cent.
Global equities were on an upswing after US President-elect Joe Biden's nominee for treasury secretary, former Federal Reserve chair Janet Yellen batted for more measures to fight the recession and avoid an even worse downturn.
In testimony prepared for her confirmation hearing on Tuesday before the Senate Finance Committee, Yellen said more aid is needed to get coronavirus
vaccines distributed and help families struggling with job losses stay fed and housed.
"Bulls took control after two days of massive selloff, tracking positive cues from Asian markets
and in expectation of a bigger US stimulus to keep the liquidity alive. Buying was seen across sectors with realty and PSU Banks outshining.
"The current market will get further boost by foreign inflow if additional US stimulus kicks in. However, recent volatility in the market has increased due to concerns over high valuations and bond yields, and investors should be watchful," said Vinod Nair, Head of Research at Geojit Financial Services.
All sectoral indices ended with gains. BSE realty, metal, power, capital goods, industrials and finance indices rallied up to 4.04 per cent.
Broader BSE midcap and smallcap indices jumped up to 2.31 per cent.
Elsewhere in Asia, bourses in Hong Kong, Seoul and Tokyo ended with significant gains, while Shanghai was in the red.
Stocks exchanges in Europe were also trading on a positive note in early deals.
Meanwhile, the global oil benchmark Brent crude was trading 1.22 per cent higher at USD 55.42 per barrel.
The rupee gained 11 paise to settle at 73.17 against the US dollar.
Foreign institutional investors purchased shares worth Rs 650.60 crore on a net basis on Monday, according to provisional exchange data.
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