Fag-end buying saved the day for markets as the benchmark Sensex rose 130 points to 25,399.65 on recovery in European stocks from early losses and hopes that Reserve Bank will cut interest rates on Tuesday.
Sentiment also got a lift after a monthly survey showed that India's manufacturing activity rose to an eight-month high in March driven by strong rise in business orders, leading firms to scale up output.
"In spite of sharp increase in risk-reward ratio, the market continues to trade at the upper-end of the trend-line due to a strong expectation of RBI rate cut," said Vinod Nair, Head of Research at Geojit BNP Paribas.
With inflation under check and government sticking to its fiscal consolidation path, market expectations are that RBI may cut interest rate by up to 0.50 per cent to propel growth.
Meanwhile, Finance Minister Arun Jaitley also pitched for easier monetary policy, arguing that high interest rates can make the economy sluggish.
For the day, the 30-share Sensex opened up and advanced to a high of 25,424.15, but profit-booking at improved levels dragged it down to a low of 25,223.49.
However, in the last hour of trading, it staged a strong comeback in line with a recovery in Europe and settled 130.01 points or 0.51 per cent higher at 25,399.65. The gauge had lost 72 points on the first session of new fiscal on Friday.
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The NSE Nifty also perked up by 45.75 points or 0.59 per cent to 7,758.80 after moving between 7,764.45 and 7,704.40.
Among auto stocks, M&M, Tata Motors, Bajaj Auto and Hero MotoCorp witnessed brisk buying activity and climbed by up to 4.29 per cent on the back of strong monthly sales figures.
In stock specific action, IT firm Geometric jumped 19.39 per cent to Rs 234 after HCL Technologies said that it has signed an agreement to acquire all the business of the company
in an equity swap deal.
Shares of Infibeam Incorporation debuted on the exchanges and ended at Rs 445.70 on BSE, a premium of 3.17 per cent over its issue price of Rs 432.
Mphasis, meanwhile, fell 2.77 per cent to Rs 454.45 as investors saw US-based Blackstone's open offer to buy 26 per cent in the Indian company at a price of Rs 457.50 per share, undervalued.
Globally, European markets recovered from early losses to trade up on positive US index futures and rebound in oil.
The UK's FTSE 100, Germany's DAX and France's CAC gained in the range of 0.54-0.96 per cent.
Earlier Asia had closed mostly up with markets, Topix and Kospi, gaining up to 0.27 per cent, while Nikkei fell 0.25 per cent. Besides, Hong Kong and China were closed for a local holiday.
Back home, from the 30-share Sensex kitty, 18 scrips ended higher and 12 led by ITC, Maruti Suzuki, Axis Bank, Coal India, HDFC and ONGC finished lower.
Major gainers were, M&M (4.29 pc), Bharti Airtel (3.76 pc), Infosys (3.12 pc), Tata Motors (2.24 pc), Asian Paints (1.80 pc), Bajaj Auto (1.35 pc), Dr Reddy's (1.18 pc), NTPC (0.85 pc), Wipro (0.81 pc), TCS (0.80 pc), Hero MotoCorp (0.79 pc) and Tata Steel (0.79 pc).
Among BSE sectoral and industry indices, telecom rose by 2.77 per cent, teck (2.06 pc), IT (1.95 pc), auto (1.16 pc), utlities (0.82 pc), power (0.81 pc) and industrials (0.59 pc), while realty fell 0.61 per cent, FMCG dropped 0.38 per cent and finance took a hit of 0.08 per cent.
Buying by retail investors picked up in broader markets helping small-cap and mid-cap shares gain up to 0.52 per cent.
The market breadth remained positive as 1,651 stocks ended higher, 962 closed lower while 133 ruled steady.
The total turnover fell to Rs 2,060.35 crore from Rs 2,144.57 crore on Friday.
Meanwhile, Foreign portfolio investors (FPIs) bought shares worth Rs 214.01 crore on Friday, as per provisional data.