Increased buying by foreign funds, onset of the southwest monsoon, although few days late, likely hike in natural gas prices after July 1 and examining of raising import tax on sugar by the government to support local prices boosted the overall sentiments in the market.
Brokers attributed the rally to slight improvement in HSBC Indian Manufacturing Purchasing Managers' Index (PMI), a measure of factory production, in May, but most of all by the positive sentiment generated by hopes of economic reforms from PM Narendra Modi govt.
The sentiment also remained positive after the Reserve Bank of India (RBI) pleased markets by unlocking about Rs 40,000 crore of banking funds by cutting the statutory liquidity ratio (SLR) by 50 basis points.
Boosting investor sentiment, the RBI also allowed foreign portfolio investors to participate in the domestic exchange traded currency derivative markets.
However, the apex bank kept the key policy rates unchanged in the second bi-monthly monetary policy review 2014-15.
Shares of realty, metal, PSU, refinery, capital goods, power, consumer durable, banking and auto sectors firmed up sharply on good buying enquiries.
The BSE Sensex surpassed its previous all-time high of 25,375.63 registered on May 16 to log its new intra-day historic high of 25,419.14 during the week before settling the week at 25,396.46, showing a sharp weekly gain of 4.87 per cent or 1,179.12 points, the best in five years.
Similarly, the wide-based 50-issue CNX Nifty of the NSE also jumped to new intra-day peak of 7,592.70 before ending at 7,583.40, a sharp gain of 353.45 points or 4.89 pct.
Market also got the tonic following decision of the European Central Bank to cut its benchmark interest rates to unprecedented lows to pump money into the sluggish eurozone economy.
"Expectations of resolution to the gas pricing issue helped stocks like RIL and ONGC register gains. We see the monsoon progress and the budget to be the two important triggers," said Dipen Shah Head - Private Client Group Research, Kotak Securities.
Onset of Monsoon is expected to ease prices of food grains, helping RBI to control sticky inflation, say experts.
Fertiliser stocks rallied on reports that the Fertiliser Ministry has prepared a road-map for rationalisation of subsidy
for the sector.
Meanwhile, Finance Minister Arun Jaitley will meet captains of Indian industry to elicit their views on the budget, which is likely to be presented in the first week of July.
Construction and engineering giant L&T rose by 9.02 pct after the company announced better-than-expected Q4 results last week-end.
Major gainers were ONGC (22.67 pct), Tata Steel (17.95 pct), Hindalco Ind (14.35 pct), Hero Motocorp (14.15 pct), Gail India (11.44 pct), SSLT (9.66 pct), BHEL (8.46 pct), Axis bank (7.51 pct), SBI (7.48 pct), Tata Power (6.69 pct), HDFC (6.67 pct), HCL (6.23 pct), Tata Motors (5.56 pct), Coal India (5.35 pct), Maruti Suzuki (5.31 pct), Reliance Ind (5.13 pct), Bajaj Auto (4.75 pct) and Bharti Airtel (3.43 pct).
Kishor Ostwal, CMD, CNI Research Ltd, said, "Markets made new highs post Modi win. First of all, the policy paralysis has come to an end as Modi got the 284 seats which was above 272 required as FII started pumping in more money. The Indian economy by now had hit the bottom and recovering from the big blows of last 7 years."
"Retail investors have now started entering market and participation is rising. This all now clearly suggest that India has entered the mother of all bull markets now and we can see Sensex crossing 41,000 in next 2 to 3 years. For immediate call in our opinion Nifty will try to cross 7,600 and 7,700 in settlement. Next week could remain bullish," he added.
Jignesh Chaudhary, Head Of Research, Veracity Broking Services, said, "The Indian equity markets observed new highs and records in the current trading week. ONGC was one of the major stocks which came into limelight in last two trading days and grew to record high. Investors are keen to invest in the Indian equity markets with a hope of strong reforms and strong budget by the new government."
"In the coming week there are some important data release such as IIP Data for the Indian economy, retail sales & PPI for US economy, and all data are expected to improve in comparison to the previous data release so this would again help the markets to grow," he added.
Among the S&P BSE sectoral indices, realty rose 12.34 pct followed by metal 11.50 pct, PSU 11.09 pct, Oil & Gas 10.44 pct, capital goods 9.56 pct, power 7.42 pct, bankex 4.92 pct and auto 4.77 pct, while only IT index finished in the red.
Small-cap and mid-cap indices continued to outperform the Sensex, rising by 8.41 pct and 7.46 pct, respectively in view of sustained buying from retail investors. Both indices closed at their multi-year peaks.
Total market turnover on the BSE and the NSE dropped to Rs 22,255.15 crore and Rs 1,12,965.06 crore, respectively, as against the previous weekend's level of Rs 28,453.44 crore and Rs 1,18,105.08 crore.