The Sensex firmed 1.2 per cent on Tuesday, taking comfort from a drop in oil prices, while Dravida Munnetra Kazhagam (DMK) put off a move to quit the cabinet, helping Asiaâ€™s third-largest economy win back some investor confidence.
The 30-share BSE index ended up 1.19 per cent, or 216.98 points, at 18,439.65, with 25 of its components advancing. Outsourcers and financials led the gains.
A fall in oil prices and hopes of a patch up between DMK and Congress helped drive the market higher, said Manish Sonthalia, vice-president and fund manager at Motilal Oswal Asset Management Co.
Foreign funds have pulled out around $1.9 billion since the start of this year up to March 4, leading to a decline of 10 per cent in the main index so far in 2011.
Brent crude briefly dropped more than $2 to below $113 a barrel as Kuwait's oil minister said OPEC was in talks to boost production for the first time in more than two years.
Hero Honda fell as much as 3.8 per cent after Hero Investments said it had agreed to buy Honda Motorsâ€™ 26 per cent stake in the company at Rs 739.97 a share, a discount of more than 50 per cent to its previous close.
The stock erased some losses and closed 0.8 per cent lower at Rs 1,518.15.
Tech Mahindra and Mahindra Satyam rallied 9.3 per cent and 3.8 per cent, respectively, after the Mahindra group said it is partnering with US telecom equipment maker Cisco Systems to provide a range of services, including cloud computing. Other outsourcers also gained as investors placed their bets on a global economic recovery and optimism over order flow. Top outsourcer Tata Consultancy Services firmed 1.4 per cent after its chief executive said the company was seeing good demand for outsourcing services across sectors and expected client spends to be better in FY12.
The 50-share NSE index or Nifty firmed 1.1 per cent to 5,520.80.