Equity indices found firmer ground on Tuesday as investors poured money into banking and finance counters amid a positive trend in global markets.
The 30-share BSE Sensex overcame bouts of volatility to end 287.72 points or 0.74 per cent higher at 39,044.35.
The broader NSE Nifty rose 81.75 points or 0.71 per cent to finish at 11,521.80.
IndusInd Bank topped the gainers' chart on the Sensex, spurting 4.03 per cent, followed by Bharti Airtel, Axis Bank, Bajaj Finance, ICICI Bank, Sun Pharma, HDFC and Kotak Bank.
On the other hand, Titan, Maruti, ITC, Asian Paints, M&M, HCL Tech and Bajaj Auto were among the laggards, shedding up to 1.20 per cent.
Mid and small-cap stocks extended their gains as participants wagered on increased inflows into the segment following changes in asset classification norms for multi-cap mutual funds.
Global equities were buoyed by encouraging industrial output data from China, which also propelled yuan to a 16-month high.
"Market breadth improved for the second consecutive day as several mid-cap stocks across diverse sectors posted handsome gains.
"The small-cap Index rose... 1.5 per cent today on the back of a stellar 5 per cent gain yesterday sending out a clear message that investors are looking at a more broad market rally after having witnessed a polarised market for a considerable length of time," said S Ranganathan, Head of Research at LKP Securities.
Sector-wise, BSE telecom, healthcare, bankex, basic materials, finance, power and utilities rose up to 1.94 per cent, while realty closed lower.
Broader BSE mid-cap and small-cap indices climbed as much as 1.44 per cent.
On the macroeconomic front, the Asian Development Bank (ADB) said India's coronavirus-battered economy will shrink by 9 per cent this fiscal, and growth outlook remains highly vulnerable to either a prolonged outbreak of the pandemic or a resurgence of cases.
Official data released post market hours on Monday showed that retail inflation remained above the RBI's comfort level in August, dampening chances of a rate cut at its next policy review.
Foreign institutional investors bought equities worth Rs 298.22 crore on a net basis on Monday, exchange data showed.
In rest of Asia, bourses in Shanghai, Hong Kong and Seoul ended with gains, while Tokyo slipped in the red.
Stock exchanges in Europe were trading on a positive note in early deals.
Meanwhile, global oil benchmark Brent crude was trading 1.49 per cent higher at USD 40.20 per barrel.
In the forex market, the rupee tumbled 16 paise to close at 73.64 against the US dollar.