Besides, a rally in technology stocks, led by Infosys, which will kick-start the earnings season for the April-June quarter later this week, also buoyed the sentiments, traders said.
The 30-share BSE index after commencing the session above the historic 26,000 mark, climbed to touch a new intra-day record high high of 26,123.55. It finally settled 138.02 points, or 0.53 per cent higher, at a new closing peak of 26,100.08. The gauge has now surpassed its previous closing high of 25,962.06 on Friday.
The 50-share NSE Nifty climbed 35.55 points, or 0.46 per cent, to close at a new peak of 7,787.15, breaching previous record closing high of 7,751.60 on Friday. During the session, it touched a lieftime high of 7,792.00, surpassing previous of 7,758.00 reached on Friday.
An HSBC survey that said manufacturing and services sectors in India expanded at a faster pace than China during June, too had a positive impact on sentiments, traders added.
"Pre-budget rally has lifted the indices to new highs", said Deepak Pahwa, a Delhi-based stock broker.
Investors have been accumulating blue-chip stocks on hopes that Finance Minister Arun Jaitley on July 10 in the Budget would announce industry-friendly measures to revive the country's economy that is growing at near the slowest pace in a decade. Last week, Sensex jumped 862.14 points.
Meanwhile, Foreign Portfolio Investors bought shares worth a net Rs 943.19 crore last Friday.
Among sectoral indices, the BSE IT index gained the most and surged 2.63 per cent as Infosys,
Tata Consultancy Services (TCS), Wipro gained in 1.86-3.23 per cent range amid weakening of the rupee.
The BSE Teck index emerged the second best performer by rising 2.16 per cent, followed by Power index (1.12 per cent) and Healthcare (0.80 per cent).
However, the BSE Oil and gas index ended 0.91 per cent lower due to profit-taking in Reliance Industries (RIL), Oil & Natural Gas Corp (ONGC) and GAIL. Banking index was down by 1.21 per cent and Realty index by 0.14 per cent.
Indian shares climb to record closing highs; BSE index above 26,000
(Reuters) India's NSE index rose on Monday to a third consecutive record high, while the benchmark BSE index surpassed 26,000 points, riding on gains in technology stocks ahead of Infosys Ltd's results and hopes of a fiscally prudent budget.
Foreign investors continued to support shares, buying a net 9.43 billion rupees ($157 million) on Friday, a sixth straight session of purchases. Overseas investors have bought $10.54 billion worth of Indian shares so far this year, regulatory and exchange data showed.
Investors are hoping that Prime Minister Narendra Modi and Finance Minister Arun Jaitley will deliver a fiscally prudent budget that increases revenue from asset sales while controlling spending.
Still, some caution was also reflected as investors picked up defensive shares such as Sun Pharmaceutical Industries Ltd .
"There is portfolio adjustment and people are taking positions ahead of the budget. Investors are looking at sectors, where greater emphasis would be given by the Modi government. We are bullish and expect more upside, but advise clients to be cautious and selective," said Suresh Parmar, head, institutional equities at KJMC Capital Markets.
The benchmark BSE index ended 0.53 percent higher at 26,100.08, a record closing high. Earlier in the day, it rose 0.62 percent to an all-time high of 26,123.55.
The broader NSE index ended 0.46 percent higher at 7,787.15 after rising as much as 0.52 percent to hit a record high of 7,792, the third session in a row.
Technology stocks led the gains, with the IT index of the BSE closing 2.63 percent higher ahead of Infosys kicking of the April-June earnings season on July 11. Infosys rose 3.07 percent, while Tata Consultancy Services Ltd gained 3.24 percent.
Infrastructure finance company IDFC Ltd rose 6.34 percent after Morgan Stanley upgraded the stock to "overweight" from "underweight" and raised its target price to 175 rupees from 115 rupees.
Healthcare stocks gained as investors tried to de-risk their portfolios by adding defensive stocks. Dr Reddy's Laboratories Ltd rose 1.94 percent, while Sun Pharmaceutical ended 1.93 percent higher.
Among other blue-chips, energy stocks gained with Tata Power Co Ltd up 3.7 percent and Bharat Heavy Electricals Ltd ending 0.74 percent higher on hopes that the power sector would get better treatment in the budget.
However, gains were limited as investors trimmed positions in banking, and oil and gas stocks. ICICI Bank closed 0.8 percent lower, while Oil and Natural Gas Corp ended down 1.5 percent.