Snapping the three-day losing streak, the S&P BSE Sensex rebounded by 230 points on Thursday amid positive global cues.
The Sensex closed at 27,010 points, down 0.86%, while the 50-share Nifty rose by 71 points, or 0.88%, to end at 8,179.
A sharp rebound in the domestic stock markets was mainly led by fading expectations over interest rate hike by the US central bank this year. The economic data released on Wednesday showed that retail sales and producer prices remain weak in the US, leading to expectations that the US Federal Reserve would delay the hike.
The weak US data led to a rally in global stocks, with Japan's Nikkei ending over 1% higher and Hong Kong's Hang Seng index gaining 2%.
"Given that household spending is one of the main pillars of growth for the US economy, disappointing figures increased investors' expectations that the Fed will delay its first hike since 2006 until March next year," said Rabobank in a note.
"Earlier this week comments from Daniel Tarullo and Lael Brainard, who spoke in favour of delaying a rate hike, indicated that perhaps the Fed could be far more divided on the timing of the first hike," the note said.
Among the BSE sectoral indices, Auto was the top gainer, followed by Oil & Gas index. IT index was the only loser after quarterly results from the country's top tow IT firms dampened investor sentiments.
Tata Motors (up 8.2%), BHEL (up 3.2%), Maruti Suzuki (up 3%), Tata Steel (up 2.8%) and Hero Motocorp (up 2.6%) were the top gainers among Sensex stocks.
Cipla (down 1.2%), Wipro (down 1%), Hindalco (down 0.9%), Hindustan Unilever (down 0.7%) and NTPC (down 0.7%) were the top losers.
Tata Motors shares rose sharply after its subsidiary Jaguar Land Rover (JLR) posted a 3% growth in sales in September on a y-o-y basis.
The LIC Housing Finance stock ended nearly 2% higher after the company reported a 20% increase in net profit for the September quarter.
"LIC Housing Finance's Q2 FY16 performance was stronger-than-expected with robust NII growth of 34% yoy and net profit increasing by 19% yoy. A combination of brisk loan growth, margin expansion and stable credit cost should drive significant earnings growth for the company over the next couple of years. RoA is estimated to improve materially from the current cyclical low of 1.3%. Valuation at 2.2x FY17E P/BV remains attractive in the above context," said Amar Ambani, Head of Research, IIFL.
On the commodity front, gold prices extended their gains for the second consecutive session on the back of weakness in the US dollar due to lessening chances of US Fed rate hike this year.
"The price rise was boosted by the weak US dollar and the further decline in rate hike expectations in the US following poor US economic data: retail sales figures in September fell considerably short of expectations and producer prices recorded their sharpest fall so far this year," said Commerzbank Corporates & Markets in a note.
The yellow metal prices rose Rs 115 to Rs 27,300 per 10 grams, while the silver prices were up Rs 100 to Rs 37,400 per kg.
The rupee also strengthened sharply by 22 paise to 64.82 against the US dollar, tracking the weakness in the greenback in overseas markets.