The share prices of oil marketing companies - IOC, BPCL and HPCL improved their gains and ended at Rs 385.70 (up 5.02 percent), Rs 794.50 (up 3.21 percent) and Rs 721.75 (up 4.88 percent), respectively.
The Sensex ended the day with a gain of 777 points, or 3.38 percent, at 23,779.35. It was the best single-day gain in more than two years. The NSE Nifty settled at 7,222.30, up 235.25 points, or 3.37 percent.
Share prices of public sector oil marketing companies (OMCs) flared up on the stock exchanges Tuesday in response to the hike in diesel and ATF prices Monday, effective from Feb.29 midnight.
Indian Oil Corporation (IOC) was trading with a gain of 2.60 percent at Rs 376.80 at around 1 p.m., while HPCL and BPCL were up 4.05 percent and 2.60 percent at Rs 716 and Rs 790, respectively.
The Sensex was up 634 points, or 2.76 percent, at 23,636.
On Monday, IOC raised non-branded diesel prices by Rs 1.47 per litre to Rs 46.43 (Delhi price) and that of aviation turbine fuel (ATF) by Rs 4,175 per kilolitre to Rs 39,301.31 (Delhi price).
The price of non-subsidised LPG cylinder was reduced by Rs 62, to Rs 513, while non-branded petrol was cheaper by Rs 3.02 per litre at Rs 56.61 (Delhi price).
"The current level of international product prices of Petrol & Diesel and INR-USD exchange rate warrant decrease in price of Petrol and increase in price of Diesel, the impact of which is being passed on to the consumers with this price revision," IOC said in a press release Monday.
"The movement of prices in the international oil market and INR-USD exchange rate shall continue to be monitored closely and developing trends of the market will be reflected in future price changes," it added.
On Monday, Finance Minister Arun Jaitley said that excise duty on ATF will be raised from 8 percent to 14 percent, while presenting Union Budget for 2016-17. The hike would impact fares between metro cities such as Delhi, Mumbai, Kolkata, Chennai, Bengaluru and Hyderabad.
The announcement had resulted in share prices of SpiceJet, Interglobe Aviation and Jet Airways dropping by 2.50 percent to 3.40 percent Monday.