Shares closed higher on Tuesday, as financials stocks rallied following a raft of measures to stabilise the global banking sector provided temporary relief.
The Nifty 50 index closed 0.70% higher at 17,107.50, while the S&P BSE Sensex rose 0.77% to 58,074.68 in their biggest one-day gains since the collapse of Silicon Valley Bank on March 10.
Nine of the 13 major sectoral indexes advanced with the high-weightage financials rallying nearly 1.5%.
The rise in domestic equities follows an uptick in global markets as concerns over the banking crisis eased after UBS' state-backed takeover of Credit Suisse, but worries of contagion in global banking remain, analysts said.
"So far, five banks globally have succumbed- from Silvergate to Credit Suisse," said Aishvarya Dadheech, fund manager at Ambit Asset Management. He expects "more worms to come out."
Information technology (IT) stocks fell nearly 1% on fears that the banking woes in developed markets could lead to tighter tech spending.
Also on the radar is the U.S. Federal Reserve's policy decision on Wednesday. The odds of a 25-basis-points (bps) hike are now 51%, with bets of a status quo at 49%. Expectations of a hike had eased to 41% on Monday from as high as 80% last week.
"The Fed has an unenviable job to control inflation with rate hikes while also controlling the consequences of its rate hikes," said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
Among individual stocks, Reliance Industries advanced over 3%. Brokerage firm CLSA called the stock a "bargain" buy at current valuations.
Larsen and Toubro rose 1.42% after the engineering and construction company bagged major orders.
Meanwhile, BofA Global Research expects the Nifty to end the year at 18,000 points, about 5.5% higher than current levels but roughly flat with end-2022.