Indian shares advanced on Tuesday, led by information technology stocks on prospects of a soft landing in the US economy improving and supported by a sustained rally in oil marketing companies.

The NSE Nifty 50 index added 0.72 per cent at 21,929.40, while the S&P BSE Sensex edged up 0.63 per cent to 72,186.09.

"The buoyancy in domestic equities is set to continue, supported by strong liquidity, both from retail and foreign investors," said Avinash Gorakshakar, head of research at Profitmart Securities.

The IT index rose 2.92 per cent after strong data from the US services sector provided further evidence of strength in the world's largest economy, a key geography for India's software companies.

Meanwhile, data showed foreign portfolio investors added IT stocks worth ₹4,485 crore on a net basis in January despite selling in other major sectors, indicating steady inflows into IT.

Tata Consultancy Services and HCLTech gained about 4 per cent each and were among the top five Nifty 50 gainers.

The oil and gas index surged 2.67 per cent, extending its rally to the third session. Bharat Petroleum Corporation , Hindustan Petroleum Corp and Indian Oil Corporation gained between 5.3 per cent and 6.2 per cent.

Since their quarterly results in the final two weeks of January, BPCL, HPCL and IOC have climbed between 17 per cent and 35 per cent.

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In-line quarterly results and the government's focus on fiscal prudence are likely to support sentiment in Indian markets, although bouts of profit-booking cannot be ruled out due to elevated valuations, Gorakshakar added.

Paytm rose about 3 per cent, rebounding off a record low. It slumped about 42 per cent in the previous three sessions after a regulatory crackdown on its payments bank.

Health insurance stocks jumped after a government panel recommended a reduction in goods and services tax rate on health and term insurance products. HDFC Life Insurance added 5.22 per cent and was the second highest percentage gainer on Nifty 50.