The benchmark Sensex surged over 250 points due to short-covering by speculators ahead of January monthly derivatives contract expiry.
Domestic sentiment got a boost on optimism ahead of the annual budget to be unveiled next week.
The Supreme Court had on Monday rejected a petition to delay the Union Budget, which Finance Minister Arun Jaitley is scheduled to deliver on February 1, dismissing concerns about potential giveaways ahead of critical state polls.
Analysts are hoping for a Budget that delivers some incentives to support an economy that has been hit by India's shock move to ban higher-value banknotes.
“Financials have underperformed for sometime because of concerns on growth and outlook after demonetisation,” said Neeraj Dewan, director at Quantum Securities.
“There can be also be some pre-budget buying happening in the market,” Dewan added.
The 30-share BSE index Sensex ended higher by 258.24 points or 0.95 per cent at 27,375.58 and the 50-share NSE index Nifty closed up 84.3 points or 1.00 per cent at 8,475.80.
Among BSE sectoral indices, metal index gained the most by 1.69 per cent, followed by auto 1.67 per cent, power 1.43 per cent and oil & gas 1.31 per cent. On the other hand, IT index was down 0.18 per cent and TECk 0.09 per cent.
Top five Sensex gainers were Bajaj Auto (+3.42%), M&M (+2.68%), Adani Ports (+2.41%), Coal India (+1.96%) and L&T (+1.88%), while the major losers were Bharti Airtel (-1.00%), Infosys (-0.7%), HUL (-0.27%), and ICICI Bank (-0.14%).
IT stocks were down amid worries US President Donald Trump's protectionist stance would adversely impact global exporters.
Trump formally withdrew the United States from the Trans-Pacific Partnership trade deal on Monday, distancing America from its Asian allies, as China's influence in the region rises.
The dollar struggled in Asia on Tuesday as US President Donald Trump's focus on protectionism ahead of fiscal stimulus fuelled suspicions his administration might be content to gain a competitive advantage through a weaker currency.
MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.4 percent, while Shangahi was flat and the Nikkei slipped 0.4 per cent.