At 1:05 pm, the Sensex traded 1,291.93 points - or 3.40 per cent - higher at 39,306.55, while the Nifty was up 373.65 points - or 3.31 per cent - at 11,647.85.

Top percentage gainers on the 50-scrip index at the time were Larsen & Toubro, IndusInd Bank, Bajaj Finserv, Bajaj Finance, ITC and Britannia, trading between 7.13 per cent and 8.91 per cent higher.

HDFC Bank, HDFC, ICICI Bank, L&T and ITC were the top contributors to the surge in Sensex. They collectively contributed more than 1,000 points to the upmove in Sensex.

The Nifty Bank sectoral index - comprising shares of 12 major lenders in the country - jumped as much as 6.28 per cent. Prominent gainers included State Bank of India (SBI) and Punjab National Bank (PNB), gaining as much as 4.23 per cent and 3.04 per cent respectively.

Analysts said the recent reforms by the government are a big positive for the markets.

"A mega bull market is starting now on the back of the reforms of the century for India... I don't think we will be looking back anytime soon," AK Prabhakar, head of research at IDBI Capital, told NDTV.

The Nifty Fast-Moving Consumer Goods (FMCG) index jumped as much as 6.63 per cent, led by ITC and Britannia - which rose as much as 9.43 per cent and 20.12 per cent respectively in intraday trade.

"ITC has got a triple bonus, in the form of the ban on e-cigarettes, the cut in corporate taxes and the reduction in GST on hotel room tariffs," said Mr Prabhakar.

Last Friday, the GST Council decided to more than double the tax on caffeinated beverages to 40 per cent while lowering the tax rate applicable to hotel room tariffs. Earlier the same day, the government slashed corporate tax by almost 10 percentage points in a bid to revive economic growth.