Indian markets rallied on Monday after exit polls showed Prime Minister Narendra Modi was set to win a second term after a general election with an even bigger mandate than in 2014.

Exits polls, following the mammoth seven-phase election ended on Sunday, showed Modi's National Democratic Alliance (NDA) is projected to win between 339 and 365 seats in the 545-member lower house of parliament when votes are counted on Thursday.

Markets had been expecting the NDA to win a second term but the margin of victory as suggested by the polls is a clear surprise and expected to keep sentiment buoyant in the near term.

The NSE share index was up 2.46 percent at 11,688.05 points as of 0558 GMT, while the benchmark BSE index was 2.57 percent higher at 38,906.76 points.

"I expect another 2-3 percent rally in the market in the next 3-4 days based on the cue," said Samrat Dasgupta, a fund manager at Esquire Capital Investment Advisors.

"But once the results are out on Thursday, even if it is as expected, I don't see much upside to the market."

India's bonds and rupee have both held in a tight range in recent weeks despite the positive underlying bias as investors stayed on the sidelines awaiting the election outcome.

Low inflation and foreign fund inflows have aided the rupee while the central bank's efforts to ensure adequate liquidity in the banking system through forex swaps and open market bond purchases have helped bonds.

Though investors are happy with the idea of continuity, they felt that a lot of the work that has been done by the government to generate economic growth has not yet been felt. 

They said the second five-year term would give Modi the opportunity to implement those reforms and deliver on growth.

"I would expect more over the next five years," said David Cornell, Chief Investment Officer at Ocean Dial Asset Management.

"A lot has been done but a lot more needs to happen in terms of the judiciary, generating employment growth, public sector divestment, attracting foreign investment, improving the fiscal deficit. So there is an awful lot more that needs to be done."