Benchmark Sensex rebounded about 425 points to end well above the 38,000-mark Tuesday, breaking its two-day falling streak on gains in heavy-weights RIL, SBI and ICICI Bank amid persistent foreign fund inflows and positive global leads.
The broader NSE Nifty too inched closer to the key 11,500 mark.
A stronger rupee also supported the rally. The rupee strengthened 19 paise to 68.77 against the dollar (intra-day).
Markets commenced on a strong note largely in line with a firming trend at other Asian bourses but remained range-bound as investors were cautious. Buying activity gathered momentum in late afternoon trade that helped both the indices Sensex and Nifty to regain their key levels.
The 30-share Sensex stayed in the green for the better part of the session and hit the day's high of 38,297.70 as buying pace gathered momentum towards the fag-end.
It finally ended at 38,233.41, up 424.50 points, or 1.12 per cent.
The gauge had lost over 575 points in the previous two sessions, tracking a sell-off across global markets.
The broader NSE Nifty climbed 129 points, or 1.14 per cent, to close at 11,483.25 Intra-day, it shuttled between 11,495.90 and 11,352.45.
Oil-to-telecom conglomerate Reliance Industries emerged as a prominent gainer in the Sensex pack, spurting over 3 per cent.
Foreign institutional investors (FIIs) remained net buyers, pumping in Rs 150.40 crore, while domestic institutional investors (DIIs) sold shares worth Rs 12.52 crore Monday, provisional data showed.
Globally, Asian and European stocks bounced back, reversing part of their recent losses, as US Treasury yields edged higher, easing concerns about a recession in the world's largest economy.