The BSE Sensex rose more than 1 percent in early Tuesday trade, after eight straight sessions of decline, as investors began covering short positions two days prior to the monthly derivative contracts expiry.
Investors rushed to cover short positions in many battered bluechips notably across financials and auto sectors.
Since the F&O (futures and options) settlement is coming up, whatever we have seen today is on account of short covering and it was expected, said R.K. Gupta, managing director at Taurus Asset Management. The actual market behaviour will be known only after the settlement of F&O, he added.
Short covering sent shares in top lender State Bank of India up 2 percent, rivals ICICI Bank and HDFC added 2.6 percent and 0.74 percent, respectively.
Automaker Tata Motors jumped 3 percent, while Maruti Suzuki, India's top car maker, also climbed more than 2 percent. The banking index rose 1 percent on Tuesday, after falling 14 percent so far this month.
At 11:16 a.m. (0546 GMT), the 30-share BSE index was up 1.2 percent at 16,138.58 points, with 25 of its components in the green.
The benchmark index has dropped about 10 percent so far this month amid worries about the inability of the government to push through major policy decisions in its winter session of parliament, which commenced on Tuesday, and slowing corporate earnings growth. The benchmark, which is down about 22 percent this year, is among the world's worst performing stock index.
Parliament convened its winter session with a long list of pending policy decisions, but analysts do not expect too many policy initiatives. Instead, the focus will be on the movement of the rupee, which hit a record low on Tuesday, said Kishor Ostwal, chairman at CNI Research.
So long as rupee is falling, I don't think anything can change fundamentally. What we are seeing today is purely because of short covering, Ostwal said.
The rupee skidded to an all-time low of 52.73 to a dollar on Tuesday as oil refiners and other companies scrambled to buy dollars, with the currency looking increasingly vulnerable to a swelling current account deficit.
The 50-share NSE index was up 1 percent at 4,826.15 points.
In the broader market, there were 1.5 gainers for every loser, on a volume of 195.5 million shares.
Asian shares edged down on Tuesday as fears about the ability of politicians on either side of the Atlantic to tackle huge debt burdens sapped investors' confidence in the outlook for Western economies.
The MSCI's measure of Asian markets other than Japan was down 0.17 percent, while Japan's Nikkei was down 0.26 percent.
STOCKS ON THE MOVE
* Pipavav Defence and Offshore Engineering rose 10 percent after the shipbuilder said it would issue shares to an international strategic investor on a preferential basis.
* Titan Industries, which retails watches and jewellery, fell 3 percent after Citigroup started coverage on the stock with a 'sell' advice, citing unfavourable risk-reward profile due to valuations and choppy gold prices.
* Shares in Force Motors jumped 20 percent after the vehicle maker said it would sell its shares in a joint venture for 150 million euros to its German partner MAN.
TOP THREE BY VOLUME
* Suzlon Energy on 19.9 million shares
* Pipavav Defence and Offshore Eng on 8.28 million shares
* Tata Motors on 6.65 million shares