The benchmark BSE Sensex gains 1.1 percent, heading for a fourth session of gains, while the broader Nifty is up 0.98 percent.
Asian shares climbed to a two-week high on Monday, and the Australian dollar and copper gained, as China said its manufacturing expanded in August at the fastest pace in more than a year.
Banks gain on hopes of potential reversal of RBI's liquidity tightening measures announced in July, dealers say.
Axis Bank Ltd (AXBK.NS) is up 1.8 percent and ICICI Bank Ltd (ICBK.NS) gains 0.94 percent.
Lupin Ltd (LUPN.NS) gains 2 percent on hopes of a key drug launch later in the month, analysts say.
Rupee on watch as India is seeking support from other emerging market countries for coordinated intervention in offshore foreign exchange markets after a currency rout the past three months, but at least one critical partner, Brazil, said it is not involved in such planning at this time.