After slipping to 25,850.04 points in early trade on selling by cautious participants ahead of monthly expiry in the derivatives segment, the 30-share Sensex bounced back to close 96.19 points, or 0.37 per cent, higher at 26,087.42. Intra-day, it touched a high of 26,113.48.
The gauge had lost 280.62 points in the previous two trading sessions.
The 50-share Nifty of the National Stock Exchange also recovered by 42.70 points, or 0.55 per cent, to close the day at 7,791.40 after shuttling between 7,707.60 and 7,798.70. It had shed 81.9 points in the previous two sessions.
Gains in Sensex and Nifty were powered by Bharti Airtel as the country's largest mobile operator climbed over 5 per cent on the back of encouraging first quarter earnings.
Earnings related buying was also seen in shares of ITC Ltd and Dr Reddys Lab. In the 30-Sensex pack, 23 ended higher and 7 finished in negative zone.
"Market breadth was marginally negative but volumes were higher than the last session," said Rakesh Goyal, Senior Vice President, Bonanza Portfolio.
Bluechip gainers included Hero MotorCorp, Maruti Suzuki, Mahindra and Mahindra, Axis Bank, Cipla, ICICI Bank, Infosys, RIL, ONGC, ICICI Bank, Hero MotoCorp, Hindalco, HDFC, HDFC Bank and TCS.
Laggards were led by L&T that slumped 7.3 per cent.
A firming trend in Asian markets before the US Federal Reserve's update on monetary policy today and a higher opening in European markets also impacted domestic shares positively, brokers said.
Sectorwise, the BSE Bankex gained the most by surging 1.57 per cent, followed by Consumer Durables 1.47 per cent and Healthcare Index 1.35 per cent, among others.
On the other hand, the BSE Capital Goods barometer tanked 4.68 per cent, followed by BSE IT (-0.25 per cent).