The S&P BSE Sensex rebounded by 171 points on Wednesday despite weakness in other Asian markets amid renewed worries over slowdown in China.
The Sensex closed at 25,822 points while the 50-share Nifty rose by 34 points, or 0.43%, to end at 7,845 points.
Nineteen of the 30 Sensex components ended in the green; Lupin, M&M, Vedanta, HDFC Bank, ITC, ICICI Bank and SBI were the top gainers. The BSE bankex index was the biggest gainer among sectoral indices, ending 1.4% up.
"After going through a deeper cut on Tuesday, indices managed to smartly recoup some losses. However, Wednesday's session just increases the uncertainty in the short term trend. Volatility could increase again on Thursday on account of F&O expiry. Headwinds like weakening rupee and slowdown in China will remain issues investors will have to deal with in the near term," said Amar Ambani, Head of Research, IIFL.
A data showed manufacturing activity in China, the world's second largest economy, fell to its lowest levels since March 2009. The Chinese flash Caixin PMI manufacturing index fell to 47 in September compared to 47.3 in the previous month.
"The number does nothing to ease the fears about the Chinese economy at the moment," said Dankse Bank in a note.
"The explosions in Tianjin in early August are said to have affected production in a manufacturing-heavy area of China, which may have added to the weakness," the note added.
Tracking the data, the Chinese equity index Shanghai Composite ended 2.19% lower at 3,115. The disappointing data also triggered sell-off in other Asian markets. While Japan's Nikkei fell by nearly 2%, Hong Kong's Hang Seng index closed 2.2% down.
However, a rebound in the European markets led by rising crude oil prices helped Indian stock markets to post a recovery later in the day. Crude oil rose on reports of a fall in US oil stocks despite renewed concerns over economic growth in China. Brent crude oil prices traded just below $50 per barrel.
Gold prices also rebounded by Rs 30 to Rs 26,540 per 10 grams on the back of firming metal prices in international markets and improved demand from jewellers ahead of the wedding season. But the silver prices plunged by Rs 655 to close at Rs 35,175 per kg.
The rupee strengthened to 65.96 against the US dollar, paring all the losses witnessed in the morning session. A recovery in the rupee was led by a sharp rebound in domestic equity markets.