Attractive valuations, along with a stable rupee and expectations of a healthy second-quarter earning results, pushed the key domestic equity indices higher on Wednesday.
Healthy buying in banking, capital goods and automobile stocks, coupled with the hopes of a revival of the non-banking financial companies (NBFCs) enhanced investors' risk-taking appetite.
According to analysts, key Indian equity indices which opened on a positive note maintained the gains aided by a slight drop in crude oil prices.
HDFC Securities Head of Retail Research Deepak Jasani said: "Markets rallied strongly on Wednesday after the correction seen in the previous session."
"Value buying seemed to emerge after the recent sharp fall in the markets. Sentiments also improved on the back of the central bank (RBI)'s decision to inject liquidity into the system through the purchase of government bonds."
Kotak Securities' Head of Fundamental Research Rusmik Oza said: "I would view this as a relief rally, after the fall of the stock market in the recent past, led by NBFCs. This pull-back effect was long due. It comes after the SBI on Tuesday said that they will buy assets from NBFCs."
"Having said that, there is still uncertainty, we are definitely not out of the woods as other public sector banks are low on cash."
The Sensex touched an intra-day high of 34,858.35 points and a low of 34,346.50.
The Indian rupee closed at 74.20, recovering 19 paise from its previous close of 74.39 per US dollar -- the all-time closing low.
In terms of fund flows, provisional data with the exchanges showed that foreign institutional investors sold stocks worth Rs 1,096.05 crore, whereas the domestic institutional investors bought Rs 1,892.94-crore stocks.
The top Sensex gainers were Axis Bank, up 6.62 per cent at Rs 589.35; State Bank of India, up 5.88 per cent at Rs 278.10; Maruti Suzuki, up 4.77 per cent at Rs 7,011.15; Yes Bank, up 4.44 per cent at Rs 234.05; and ICICI Bank, up 4.18 per cent at Rs 318.90 from its previous close.
Major losers included Infosys, down 2.38 per cent at Rs 700.30; Tata Consultancy Services (TCS), down 2.27 per cent at Rs 2,043.05; Sun Pharma, down 1.12 per cent at Rs 603; Wipro, down 1.05 per cent at Rs 316.85; and Coal Industries, down 0.48 per cent at Rs 271.60 per share.
(With inputs from agencies.)