The Sensex ended the day higher by 373 points, while the Nifty ended the day higher by 120 points. Banks and financial institutions led the recovery with Axis Bank, HDFC Bank, HDFC and ICICI Bank all gaining ground.
Reliance Industries gained more then 1 per cent ahead of its results to be declared later today. IT stocks were subdued and remained weak with Infosys dropping more then 1 per cent, while TCS ended the day flat.
Auto stocks rallied smartly on hopes that lower commodity prices would boost profitability at these companies. Maruti, Mahindra and Mahindra, Tata Motors and Hero Motor Corp were among the gainers.
Nifty stocks that declined in trade were Sterlite and Jindal Steel. Pharma stocks saw some buying with stocks like Cadila, Sun Pharma and Ranbaxy gaining ground.
Realty stocks also gained on hopes that a rate cut would help spur growth and demand from the sector. Kingfisher Airlines hit a new lifetime low of Rs 6.87 and was stuck at the lower end of the circuit filter.
Shares in retail jewellery companies gained after falling initially on hopes that a fall in gold prices would push demand higher. The worst hit in trade were the gold loan companies including Muthoot and Manappuram Finance.
Meanwhile, markets in Europe were trading lower after an overnight fall in the US.