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Thirty one stocks on the 50-scrip benchmark index closed higher. Top gainers on the index were Tata Steel, Yes Bank, Indian Oil, NTPC and Larsen & Toubro, finishing with gains of between 3.20 per cent and 5.80 per cent.
HDFC Bank, HDFC and L&T contributed the most to the upmove on Sensex.
The Nifty Bank and Nifty Financial Services indexes ended 1.39 per cent and 1.46 per cent higher.
Marked breadth favoured the advances, with 1,331 stocks on the National Stock Exchange finishing higher and 470 ending lower. On the BSE, 1,794 stocks advanced while 783 declined.
Analysts say strength in select stocks is pushing the key indexes higher. "We have a new government and we are seeing stock specific rally," AK Prabhakar, head of research at IDBI Capital, was quoted as saying in a report by news agency Reuters. "There will be sectors which are likely to outperform and markets are now waiting for a new policy."
Midcap and smallcap stocks outperformed the benchmark indexes. The S&P BSE Midcap and Smallcap indexes closed 1.13 per cent and 1.77 per cent higher respectively.
On the other hand, the Nifty Pharma finished 0.97 per cent lower, dragged by Lupin, Sun Pharma and Divi's Laboratories.
Shares in InterGlobe Aviation - the operator of the IndiGo airline - rose 2.77 per cent to close at Rs 1,666.60 apiece on the NSE, ahead of the earnings announcement by the company for the January-March period.
The government is due to release the GDP or gross domestic product data for the quarter ended March 31 on Friday.
The Sensex and Nifty had ended 1.61 per cent and 1.60 per cent higher on Friday, after the Bharatiya Janata Party-led National Democratic Alliance (NDA) won an overwhelming majority in the recently concluded general elections.
(With inputs from Reuters)