The BSE benchmark Sensex bounced back by 130 points to settle the week at 18,755.45 in view of fresh buying in mainly in consumer durable, auto, pharma, IT and metal sectors.
Optimism over the reshuffle of Cabinet coupled with renewed capital inflows from foreign funds boosted the market sentiment.
Worried over high budget deficit derailing growth, finance minister P Chidambaram unveiled a five-year road map for fiscal consolidation to promote investments, contain inflation and take India to high growth trajectory.
Auto stocks were in demand on higher sales in the month of October and hopes of more sales in the forthcoming festival season.
Sensex resumed slightly up at 18,656 and dropped to 18,393.42 as the RBI kept the key borrowing and lending rates unchanged as well as hiked provisioning norms and lowered growth projection, spooking investors who resorted to all-round selling, particularly in bank and realty stocks.
However, Sensex recovered afterwards to 18,793.75 on renewed buying on the back of recovery in global market to finish the week at 18,755.45, showing a net gain of 130.11 points or 0.70%.
The NSE 50-share Nifty also moved up by 33.40 points or 0.59% to close at 5,697.70.
The RBI maintained status quo on repo rate, cut GDP growth forecast for 2012-13 to 5.8% from 6.5% and increased inflation estimate to 7.5% from 7%.
Finance minister's comment that the government will endeavour to maximise revenue collection and contain expenses to limit fiscal deficit to 5.3% of GDP in the current fiscal year, also helped lift the mood.
Foreign Institutional Investors (FIIs) were the net buyers of Rs 885.90 crore including the provisional figure of November 2.
Asian stocks mostly ended higher on speculation that the Federal Reserve would maintain monetary stimulus to help the US economy recover from the superstorm Sandy.
"The downside seems capped for the market even though there is no marked improvement in the economy at ground level. At the same time one must really appreciate that the bottom has been hit and bounce has started," CNI Research CMD Kishor Ostwal.
This clearly tends my call in favour of slower but sure recovery, he added.