Additionally, attractive valuations buoyed the markets with the S&P BSE Sensex gaining 636.86 points, or 1.74 per cent, to close at 37,327.36.
Similarly, the NSE Nifty50 gained 176.95 points, or 1.63 per cent, to close at 11,032.45 points.
On a sector specific basis, healthy buying was witnessed in the banking, auto and oil and gas stocks.
The key indices rose as intense speculation over the roll-back of the budgetary proposal of a taxation surcharge on the super-rich category caused massive outflows of foreign funds.
Market participants fear that once implemented, the will adversely impact FPIs, which are set up as non-corporate vehicles.
Typically, FPIs are set up as trusts or limited partnerships in their home jurisdictions. The definition of a partnership firm under the Indian tax law refers to the Indian Partnership Act, which does not recognise foreign partnerships or limited partnerships.A
"Markets today started to sense some relief coming in for the capital markets from a likely clarification on the roll-back of surcharge on FPIs (foreign portfolio investors)," said Devang Mehta, Head - Equity Advisory, Centrum Wealth Management.
"The recent round of market correction was led by FII (foreign institutional investors) sell-off post the Budget and the selling intensified in the last few days, where evidence of our economic slowdown, poor earnings in certain sectors and global volatility as well as rhetoric of trade wars came to haunt," he said.
According to Geojit Financial Services Head of Research Vinod Nair, "market gets a breather towards the close and reclaimed the 11,000 level due to the expectation that the government is likely to be lenient on higher surcharge on FPIs, which influenced bears to cover their short positions."
"Additionally, prospects of lower interest rate going forward and strength in rupee will ease the liquidity crunch situation," he added.
( With inputs from IANS )