Snapping five-day losing streak, the BSE Sensex on Tuesday surged by 221 points on fresh buying in rate-sensitive banking, realty and capital goods stocks after retail inflation eased to 30-month low of 7.31%.
The 30-share BSE barometer closed at 25,228.65 points, up by 221.67 points, or 0.89% over last close. In the previous five sessions, the index lost nearly 1,100 points.
The small-cap and mid-cap indices of BSE also firmed up to 2% on good demand from retail investors and outperformed the benchmark Sensex.
The 50-share Nifty of NSE also rose by 72.50 points or 0.97% to 7,526.65.
Brokers said softening of inflation sparked off hope that the Reserve Bank will cut interest rate at its policy review next month. Stocks of consumer durable, banking, capital goods, realty, power and refinery gained.
Retail inflation in June touched its lowest mark at 7.31% since January 2012 and the wholesale price-based index slid to four-month low of 5.43 per cent mainly because of easing vegetables prices.
"Most of the sectors recovered from lower levels due to bargain buying after a decent correction seen in last week.
Better IIP data and easing inflation has boosted market sentiment, as they expect policy rates to soften in coming months," said Nidhi Saraswat, Senior Research Analyst, Bonanza Portfolio Ltd.
Rate-sensitive sectors like banking, auto and realty were seeing buying interest, Saraswat added.
Among 30-Sensex scrips, 19 ended higher.
SBI was the biggest gainer among Sensex stocks rising by 4.47%. Bhel rose by 4.31%, ICICI Bank by 3.34% and Tata Steel by 2.91%. Axis Bank rose by 2.78%, M&M by 2.59%, ONGC by 2.31%, Larsen & Toubro by 2.27% and RIL by 1.16%. Coal India, Bajaj Auto, Tata Motors and Gail India also posted gains.
Dr Reddy's was the major loser among index stocks with losses of 1.99%.
Asian stocks ended higher following overnight gains in the US market which also supported the market sentiment. Key indices in China, Hong Kong, Japan, Singaproe, South Korea and Taiwan moved up by 0.01% to 0.94%.
European stock markets were trading higher as investors awaited Federal Reserve Chair Janet Yellen's semi-annual testimony later in the global day.
"Today local equities added nearly one per cent and blue chip companies traded higher with the help of FIIs snapping a five-day selling streak," Jignesh Chaudhary, Head of Research, Veracity Broking Services said.
"Now traders are eagerly waiting for the RBI's credit policy review scheduled next month on August 5," he added.
Among the BSE sectoral indices, consumer durables rose by 2.82% followed by Bankex 2.76%, CG 2.23%, realty 2.15%, Oil&Gas 1.58%, power 1.52%, auto 1.40% and Metal 1.30%.
Mid-cap and Small-cap indices rose by 1.93%and 2.21% respectively.
Market breadth turned positive as 1,844 stocks ended higher, 1,084 stocks finished lower while 105 ruled steady.
The total turnover rose to Rs 2,684.29 crore from Rs 2,479.60 crore on Monday.