The market scaled sharply higher on Monday, with the Sensex soaring 300 points on short covering in largecaps post the country began working smoothly under the GST regime - One Nation One Tax.

The fear that the market was expecting (the likely impact on earnings) before the launch of Goods & Services Tax has completely faded. With smooth transition of GST, it seems that there could be less impact of GST on earnings. Auto companies already cut prices of their models to pass on GST benefits to consumers while FMCG companies like ITC, Colgate will do it soon that will increase their sales.

"Market welcomed the new tax regime with a positive note while shrugging off the initial hiccups of investors during the last couple of weeks where market witnessed consolidation. Spending is likely to increase due to the impact of lower tax and increased sales volume will continue to benefit the earnings potential in the future," Vinod Nair, Head of Research, Geojit Financial Services said.

The 30-share BSE Sensex was up 300.01 points or 0.97 percent at 31,221.62 and the 50-share NSE Nifty gained 94.10 points or 0.99 percent at 9,615.

The broader markets also participated in the rally as the BSE Midcap and Smallcap indices rose 1 percent each on strong breadth. About two shares advanced for every share falling on the BSE.

Meanwhile, the Purchasing Managers' Index (PMI) for June dropped to a four-month low of 50.9 (from 51.6 in May), highlighting a slowdown in growth across India’s manufacturing sector. A softer rise in factory new orders resulted in weaker growth of production.

All sectoral indices ended in green, with the FMCG (up nearly 4 percent), Auto (1.3 percent) and Metals (nearly 2 percent) leading the charge.

Cigarette major ITC jumped 5.7 percent after the government, over the weekend, scrapped excise and additional excise on cigarettes, implying 7-8 percent decline in taxes.

After raising target price to Rs 417 (from Rs 375), CLSA believes ITC should trim prices of its small-sized cigarettes (DSFT/RSFT) to gain shares. "ITC may also need to take some hit on channel inventory in the event of price cuts, but we do not see a big concern," it said.

Other FMCG stocks like Colgate Palmolive, Dabur India, Hindustan Unilever gained 1 percent each.

Auto stocks gained after June sales data. Maruti Suzuki rose 2 percent as it reported 7.6 percent growth in auto sales in the month gone by. The company is set to unveil major corporate transformation strategy, reports CNBC-TV18 quoting sources.

Ashok Leyland was the biggest gainer among auto stocks, up nearly 7 percent followed by Hero Motocorp, Eicher Motors and M&M with 1-2 percent upside. However, Tata Motors lost 0.4 percent on 9 percent degrowth in June sales due to lower passenger vehicle sales.

Among others, Infosys, Asian Paints, Adani Ports, ONGC and Coal India gained 1-2 percent whereas Kotak Mahindra Bank, NTPC, Sun Pharma, Lupin and Cipla were down 0.5-1.2 percent.

In broader space, Titan Company was up 1.5 percent as Morgan Stanley sees an opportunity for more than 2 times returns on the stock over the next three years. It forecasts acceleration in revenue growth led by rapid market share gains, ahead of market expectations, after implementation of GST.

Positive global cues also supported the market as Asia ended mostly higher. European markets were higher, with the France's CAC, Germany's DAX and Britain's FTSE up 0.3-1 percent at the time of writing this article.