Rebounding from a 4% fall on Tuesday, the benchmark Sensex on Wednesday rose 333 points, or 1.8%, to end at 18,568 as investor sentiments improved following a smart pullback in the rupee.
Expectations of measures from new Reserve Bank of India (RBI) governor Raghuram Rajan to boost growth and stem the rupee’s slide also aided the rally.
The rupee ended up 56 paise, or 0.8%, to 67.07 against the dollar.
"The rebound was aided by a substantial recovery in the rupee against the dollar," said Jayant Manglik, president, retail distribution, Religare Securities.
The broader NSE Nifty also rose 107 points, or 2%, to end at 5,448.
Most of the sectoral indices ended in the black led by metal (up 2.7%), healthcare (up 2.7%), and auto (up 2.4%). Realty Index fell 0.5% after the RBI asked banks to link the disbursal of home loans to stages of construction.
Of the 30-share Sensex, 29 scrips advanced, led by Bhel (6.2%) and Tata Motors (4.7%).
TCS ended 3.4% higher after hitting a lifetime high of Rs 2,079 in early trade while Infosys gained 2.6% after hitting a record high of R3,134.
Experts, however, advice caution. "The market is very volatile, and I expect it to remain volatile," said Sahil Kapoor assistant vice-president, retail capital markets, Edelweiss. "Refrain from (entering) the markets."