The Bombay Stock Exchange benchmark index Sensex, which lost 272 points yesterday, bounced back 191.05 points to close the day at 18,358.69, riding on realty and banking stocks.
Similarly, the broad-based National Stock Exchange index Nifty rose by 61.50 points to 5,511.15 as investors focused on attractive valuations in frontline stocks.
Brokers said buying was confined to fundamentally strong stocks available at attractive low levels as investors felt that strong advance tax payments for the fourth quarter of this fiscal indicated that India Inc earnings were on track.
They said easing crude oil prices reduced concerns of any steep hike in key rates by RBI, which is slated to hold monetary policy review tomorrow.
A firming trend in the Asian region and higher opening in Europe further fuelled the trading sentiment.
Brokers said however that the political tensions in the Middle East and quake-tsunami hit Japan`s continuing battle against radiation leaks at nuclear reactors, have capped the gains to some extent.
The MSCI Asia Pacific Index rose 2.2 per cent, after losing more than 10 per cent from a January 19 peak. The price of oil fell 1 per cent to a two-week low in New York.
In the 30-BSE index components, 24 stocks closed higher while all the sectoral indices led by banks, realty and consumer durables ended in the positive zone.
The realty sector index gained the most by rising 2.47 per cent to 2,104.51 and banking index by 2.15 per cent to 12,438.34 on hopes of only a moderate hike in RBI rates.
The two most-heaviest stocks, with their 23 per cent weightage on the Sensex, Reliance Industries and Infosys Technologies rose smartly on emergence of investment buying.
RIL rose by Rs 8.30 to Rs 1,044.60 and Infosys by Rs 5.80 to Rs 3,035.50.
As the buying activity picked up in low valuation stocks, midcap index rose by 1.37 per cent to 6,556.45 and smallcap index by 1.26 per cent to 7,889.62.