At 11:42 pm, the Sensex traded 335.86 points - or 0.85 per cent - higher at 39,770.58, while the Nifty was up 99.95 points - or 0.84 per cent - at 11,944.05.

HDFC Bank, HDFC and L&T contributed the most to the advances on Sensex.

The Nifty Bank index rose as much as 0.99 per cent. Besides Yes Bank, prominent gainers on the sectoral index included Punjab National Bank, Bank of Baroda and Axis Bank, which rose between 1.35 per cent and 3.4 per cent. Heavyweight State Bank of India (SBI) rose as much as 1.79 per cent.

"We have a new government and we are seeing stock specific rally. There will be sectors which are likely to outperform and markets are now waiting for a new policy," said AK Prabhakar, head of research at IDBI Capital.

Market breadth favoured the upside in the markets, with 1,306 stocks trading in the positive zone and 423 struggling with losses on the National Stock Exchange (NSE). On the BSE, 1,701 stocks advanced at the time, while 681 declined.

Midcap and smallcap stocks outperformed the benchmark indexes, with the S&P BSE Midcap and Smallcap indexes rising as much as 1 per cent and 1.62 per cent respectively.

On the other hand, the Nifty Pharma index dropped as much as 1.34 per cent, dragged lower by losses in Lupin and Dr Reddy's Laboratories.

Equities in other Asian markets hovered near four-month lows on Monday amid concerns about US-China tensions, with MSCI's broadest index of Asia-Pacific shares outside Japan virtually flat, a sliver above from a four-month low touched on Friday, while market holidays in the US and UK dented trading volumes. Japan's Nikkei average was up 0.3 per cent by its midday break.