The BSE Sensex rose on Tuesday, although on its lowest volume in nearly 1-1/2 months, led by gains in technology shares that were aided by a weak rupee and attractive short-term valuations due to the recent underperformance of the sector.
Sentiment also got a boost as foreign institutional investors bought $50.2 million worth of shares on Monday, totalling nearly 70 billion rupees worth of inflows over the previous eight sessions.
Deutsche Bank also said fears of foreign institutional investors capitulation are receding following governor Raghuram Rajan's recent announcements, supportive trade data and easing investment facilitation in debt markets.
However, caution prevailed ahead of the U.S. Federal Reserve's two-day policy meeting, at which it is widely expected to begin withdrawing stimulus, followed by the central bank policy review on September 20.
"Nifty was showing indecision in range 5800-5850 today. Even though it closed near 5850 level, volumes were much lower and market breadth was weak," said Rakesh Goyal, senior vice president at Bonanza Portfolio Ltd.
The outcome of the Federal Reserve meet and RBI policy review will decide the market trend from here onwards, he added.
The BSE Sensex rose 0.31 percent, or 61.56 points, to end at 19,804.03, although on its lowest volumes since August 2, Thomson Reuters data showed.
The broader Nifty rose 0.17 percent, or 9.65 points, to end at 5,850.20, after earlier slipping below its 200-day moving average for a brief period.
Shares in IT companies gained, tracking weakness in the rupee and as recent underperformance made their short-term valuations attractive, dealers said.
Tata Consultancy Services Ltd (TCS.NS) rose 2.4 percent, Infosys Ltd (INFY.NS) gained 1 percent while Wipro Ltd (WIPR.NS) surged 5.1 percent.
Ranbaxy Laboratories Ltd (RANB.NS) gained 3.6 percent on value buying after a ruling from the U.S. health regulator on its Mohali factory triggered the worst single-day fall in its stock on Monday, wiping off a third of its market value.
Dr. Reddy's Laboratories Ltd (REDY.NS) shares rose 3.6 percent after the company said U.S. health regulator approved its generic version of Celgene Corporation's anti-cancer Drug Vidaza which had U.S. sales of $378.5 million for twelve months ending July, according to IMS Health.
GMR Infrastructure Ltd (GMRI.NS) ended 2.1 percent higher after the company said it had sold its majority stake in a highway construction unit for about 2.22 billion rupees, which will help the company reduce its debt.
However, among decliners, India's gold-based non-banking lenders slumped after the Reserve Bank of India tightened rules on Monday for such companies, in line with the recommendations of an internal panel.
Muthoot Finance Ltd (MUTT.NS) plunged 8 percent, while Manappuram Finance Ltd (MNFL.NS) fell 5 percent.
Bank shares also edged lower ahead of key central bank meetings: ICICI Bank Ltd (ICBK.NS) and State Bank of India Ltd lost 0.8 percent each.