The S&P BSE Sensex rallied over 350 points, led by gains in rate sensitive sectors such as banks, realty and auto even as the RBI hiked repo rate by 25 bps to 7.75 per cent and cut MSF rate by 25 bps to 8.75 per cent with immediate effect. The broader index Nifty also surged past 6,200 level.

"Whatever increase has been done on the repo rate has been likely compensated by increasing the window under the term repo because what I have been saying time and again is that it is not the rate alone which is important, it is the window available that is more important," Pratip Chaudhuri, former CMD, State Bank of India. The bank raised the limit for liquidity through 7, 14 day term repo to 0.5 per cent of NDTL from 0.25 per cent earlier.

According to the central bank, the repo rate has been hiked to anchor inflation expectations. These measures will help foster macro and financial stability.

RBI expects the WPI inflation to remain higher than current levels and elevated inflation will warrant appropriate policy response. The bank will closely monitor inflation risks while being mindful of growth.

At 2:15 p.m.; the 50-share index was at 6218.55, up 117.45 points or 1.93 per cent. The index touched a high of 6224.45 and a low of 6,079.20 in trade today.

The S&P BSE Sensex was at 20925.72, up 355.44 points or 1.73 per cent. It touched a high of 20935.04 and an intraday low of 20,493.66 in trade so far.

The S&P BSE Midcap Index was up 1.28 per cent and the S&P BSE Smallcap Index rose 0.56 per cent.

The Sensex gainers included Maruti (up 7.37 per cent), ICICI Bank(up 4.97 per cent), Tata Steel(up 3.84 per cent) and Hero MotoCorp (up 2.96 per cent).

Experts are saying that the markets are likely to hit all-time highs by Diwali, but given the spike in the markets today, it seems the mark could be hit today itself.

"Nifty is seen cheering the RBI's decision. The repo rate has been hiked by 25 bps and at the same time MSF been cut by 25 bps also. This has come in line with the expectations as inflation has been on upper side in last few months. However, we feel that much has been discounted in the prices already, and market may take some more time to consolidate within 6,000-6,250, before it can rally further above 6,300 levels," says Nidhi Saraswat-Senior Research Analyst, Bonanza Portfolio Limited.

The foreign institutional investors bought shares worth Rs 636.78 crore while domestic institutional investors were net sellers worth Rs 902.68 crore on Monday as per the provisional data from the National Stock Exchange.