Tuesday's early trade saw the Sensex jump over 180 points as falling retail inflation sparked a buying frenzy in the market.
A strong trend on other Asian exchanges also contributed to the rise in domestic stocks, according to brokers.
The 30-share Sensex was up 186.98 points, or 0.32 percent, to 58,364.74. Similarly, the Nifty rose 54.65 points, or 0.31 percent, to 17,409.95 in early trade.
Bajaj Finance led the Sensex pack with a 0.78 percent increase, followed by Dr. Reddy's, Kotak Bank, ICICI Bank, IndusInd Bank, Sun Pharma, Axis Bank, and Reliance Industries.
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Infosys, Bajaj Auto, PowerGrid, and UltraTech Cement, on the other side, were all trading in the red.
Retail inflation fell to 5.3 percent in August for the third month in a row, within the Reserve Bank of India's target range.
Retail inflation based on the Consumer Price Index (CPI) fell to 5.3% in August from 6.69% in the same month a year earlier, while food inflation fell at a considerably quicker pace to 3.11 percent from 9.05 percent in August 2020.
The Sensex closed 127.31 points, or 0.22 percent, down in the previous session at 58,177.76. On the other hand, the broad NSE Nifty fell by 13.95 points or 0.08 percent to 17,355.30
Other Asian stock exchanges saw increases in mid-session trades, including Shanghai, Seoul, Tokyo, and Hong Kong.
Stocks in the United States closed the overnight session substantially higher.
According to provisional exchange statistics, foreign institutional investors (FIIs) bought shares worth Rs 1,419.31 crore on Monday.
Brent crude, the international benchmark for crude oil, climbed 0.44 percent to USD 73.83 per barrel
Rupee rises 7 paise to 73.61 against US dollar in early trade.