Benchmark share indices gained around 1% to end at their highest levels since December 3, 2015, amid renewed buying demand among pharma and rate-sensitive sectors like auto and banks.
Besides, investors will remain cautious ahead of F&O expiry of the December series, scheduled for December 31.
The S&P BSE Sensex ended higher by 195 points or 0.8% at 26034 and the Nifty50 gained 64 points or 0.8% to close at 7,925.
Among broader market, the BSE Midcap and Smallcap indices gained between 0.2%-0.5% each.
"Festive cheer was finally seen on D-street as the last few days of the calendar year 2015 commenced with a trade in the green, Sensex brushing past the 26,000 mark while Nifty raced closer to 8,000.
"Midcap and Smallcap action made this a broad based phenomenon. NSE derivatives expiry and year end moves would dominate the trade this week and volatility is expected to be on the rise.
"Watch the level of 7,907 on Nifty spot as a trailing support for targets near 8,037 with a hurdle at 7,944," says Ranak Merchant, Technical Analyst - Strategies from Sushil Financial Services.
The rupee continued to rule higher against the American currency for the eighth straight session as it rose 7 paise to 66.14 at the Inter-bank Foreign Exchange market today on increased selling of the US currency by exporters and banks.
In overseas markets, Asian stocks dipped on Monday amid a lack of immediate directional cues in light year-end trade, although Japanese shares managed to rise following a rebound in crude oil prices from multiple-year lows.
Investors across asset markets were without some of the usual leads as most global markets were closed on Friday for Christmas.
The British markets will remain closed on Monday, while those in Germany and France will reopen.
MSCI's broadest index of Asia-Pacific shares outside Japan gave up earlier modest gains and was down 0.4%. The index was on track for an 11% loss this year.
Apart from telecom and metal, all the sectors ended in positive zone.
Pharma majors like Dr Reddy's Labs, Sun Pharma, Lupin and Cipla were up between 1%-4%.
According to media report, Indian pharmaceutical firms are gearing up to tap new markets in 2016 as they look to consolidate their positions after a spate of mergers and acquisitions consummated this year.
Reliance Industries gained 0.6% after its telecom arm of RIL, Reliance Jio on Sunday announced the much awaited fourth generation wireless broadband service for its employees under Jio brand name.
Its competitors Bharti Airtel and Idea Cellular have come under pressure. Both these stocks dropped between 1%-2% each.
Shares of Tata Motors rose almost 3%. The company is planning to locally produce the automated manual transmission of the next generation Nano by 2016.
ONGC surged over 2.6%. The company's overseas arm ONGC Videsh (OVL) and Rosneft have signed an agreement of confirmation of successful completion of the first stage pre-completion actions in relation to the creation of a joint venture in JSC 'Vankorneft'.
Coal India inched up by 1%. Coal sector is looking for key reforms in the new year in areas like quality checks as also the steps for augmenting output and rationalising the prices.
ITC and HUL are set to expand their healthcare products category line. ITC is set to expand its Savlon brand across markets while HUL is aggressively pushing its Lifebuoy handwash programme.
ITC is up over 1% whereas HUL rose 0.5%.
On the losing side, Tata Steel, Bharti Airtel, M&M, HDFC and Asian Paints were down between 1%-3%.
Among other shares, Allcargo Logistics ended higher by nearly 5% after the company said December 31, 2015, has been fixed as a record date for the purpose of issue of bonus shares in the ratio of 1:1.
SpiceJet today announced a four-day sale, offering one-way base fares as low as Rs 716 for the journey period between January 15 and April 12 next year for domestic fliers. Shares of SpiceJet were up around 4%.
Tube Investments of India surged zoomed over 11% after the company announced that it will sell 14% of its stake in Cholamandalam MS General Insurance (Chola MS) to its joint venture partner, Mitsui Sumitomo Insurance for Rs 883 crore.
KEI Industries appreciated by 8% after the company announced that it has bagged orders/ notification of awards (NOA) valuing Rs 384.53 crore (ex-works) from Power Grid Corporation of India.
With Reuters input
Image: A stock trader. Photograph: Reuters