The Sensex, which shed 16.26 points at the onset of trade, bounced back to trade higher by 172.75 points, or 0.96 per cent, at 18,161.05 at 1000 hrs.
Similarly, the broad-based National Stock Exchange index Nifty rose by 57.75 points, or 1.06 per cent, to 5,471.60.
Brokers said a recovery in financial, healthcare and metal sector stocks helped the Sensex trade notably higher.
The BSE banking index rose by 1.40 per cent to 12,407.95, with the country`s largest lender State Bank of India gaining 0.43 per cent to Rs 2,632.10, while private lender ICICI Bank rose by 2.26 per cent to Rs 1,026.
Shares of health care companies were also in better form after the government decided to roll back 5 per cent service tax imposed on private hospitals with 25-bed or more capacity.
The healthcare index was up by 1.08 per cent at 5,922.35 at 1000 hours, with stocks of Fortis Healthcare rising by 0.13 per cent to Rs 151.50 and Piramal Healthcare up by 1.55 per cent at Rs 478.80.
Sugar sector stocks also evoked good buying support after the government allowed sugar export of up to 5 lakh tonnes.
Among the Sensex pack, 16 stocks advanced, while the rest declined. Hero Honda Motors (up 1.11 per cent) and Jindal Steel and Power (up 1.03 per cent) gained in the early trade.
In contrast, Mahindra & Mahindra (down 1.46 per cent), and TCS (down 0.66 per cent) were among the prominent losers.
Meanwhile, Japanese shares dropped in early trade today, surrendering a portion of Tuesday`s large gains, with the aftermath of the March 11 earthquake still weighing on some shares.
The Nikkei 225 average was down 1.21 per cent, though most other Asian shares rose. Key benchmark indices in Singapore, South Korea, Taiwan and China rose between 0.12 per cent and 0.78 per cent. Hong Kong`s Hang Seng, however, fell by 0.21 per cent.