The BSE Sensex rallied 519.11 points, or 1.49 per cent, to close at 35,430.43; while the NSE Nifty soared 159.80 points, or 1.55 per cent, to end at 10,471.
Aided by positive cues from global markets and sustained foreign fund inflow, investor sentiment remained upbeat.
On the Sensex chart, L&T was the top gainer, soaring around 7 per cent, followed by Bajaj Finance, IndusInd Bank, NTPC, PowerGrid, M&M and Axis Bank.
On the other hand, Reliance Industries Bharti Airtel and Maruti closed with loss.
Sectorally, BSE power, capital goods, utilities, realty, industrials and bankex rallied up to 4.24 per cent. Broader midcap and smallcap indices rose up to 1.80 per cent.
"The Indian indices traded positive, in sync with global indices, seemingly on the back of continued liquidity flows into the markets," Vinod Nair, Head of Research at Geojit Financial Services, said.
"Markets were also optimistic on the back of news of a de-escalation in border hostilities and the pace of COVID-19 recoveries increasing, in spite of the new virus infections," he added.
In a positive move, Indian and Chinese armies have arrived at a consensus to "disengage" from all friction points in eastern Ladakh at a marathon meeting of top military commanders of the two sides on Monday, official sources said.
The talks were held in a "cordial, positive and constructive atmosphere" and it was decided that modalities for disengagement from all areas in eastern Ladakh will be taken forward by both the sides, they said.
On a net basis, foreign institutional investors bought equities worth Rs 424.21 crore in the capital market on Monday, provisional exchange data showed.
The rupee appreciated 37 paise to close at 75.66 against the US dollar.
On the global front, bourses in Shanghai, Hong Kong, Seoul and Tokyo ended on a positive note.
Stock exchanges in Europe were also trading significantly higher.
International oil benchmark Brent crude futures rose 1.37 per cent to USD 43.67 per barrel. ANS MKJ