The BSE Sensex and Nifty rose by nearly 1% on Wednesday, heading for their highest close in nearly a fortnight, led by gains in software exporters as investors seeking bargains bought into beaten down stocks.
Information technology stocks like Infosys, Tata Consultancy Services and Wipro led the rally on a strong US dollar on rising expectations of an interest rate hike by the US Federal Reserve.
Sentiment was also boosted after a private survey showed India's dominant services industry bounced back to growth in July.
The Sensex was up 0.83% and the Nifty rose 0.76% heading towards their highest close since July 23.
"After yesterday's credit policy the view was that we could go down and recover. My sense is that we're seeing some buying at lower levels," Gaurang Shah, vice president at Geojit BNP Paribas, said.
Indian stocks ended a four-session winning streak on Tuesday after the central bank left key rates unchanged.
Financial stocks that saw some selling pressure on Tuesday recovered with Housing Development Finance Corp gaining 0.7% and HDFC bank rising by 0.5%.
Adani Enterprises Ltd's shares jumped over 9% after the company announced on Tuesday that it was in talks with Taiwan's Foxconn for a possible joint enterprise, despite no agreement being signed yet.
Nestle India rose as much as 10% after India's FSSAI-approved lab found Nestle's Maggi noodles to be safe for human consumption.
Bharti Airtel gained 3% after reporting better than expected earnings on Tuesday.