The blue-chip NSE Nifty 50 index closed up 0.95% at 17,562.00, while the benchmark S&P BSE Sensex rose 0.88% to 59,005.27
The indexes fell as much as 0.4% earlier in the session, dragged by auto stocks. The Nifty's volatility index slipped 5.6% after having risen for four straight sessions.
Metal stocks led the charge, jumping 2.6% from troughs hit in the previous session on concerns of the impact of a default by Chinese property giant China Evergrande.
Monday's deep moves were likely a bit of a knee-jerk reaction to fears surrounding Evergrande, said Anita Gandhi, director at Arihant Capital Markets.
"I think there is a realisation that the Evergrande issue will likely not hurt Indian companies as much as it will the global players... the September quarter is also expected to be better for metal companies."
Investors are also awaiting cues on U.S. monetary policy from a Federal Reserve meeting starting later on Tuesday. The central bank is likely to lay the groundwork for an eventual tapering of its bond-buying programme.
Tech stocks ended nearly 2% higher to snap three straight sessions of losses, with Mindtree Ltd jumping over 5%.
Real estate stocks snapped two consecutive sessions of losses, with Brigade Enterprises adding more than 9%, as analysts pointed to signs of a rebound in sales for home builders following the easing of COVID-19 restrictions.
(Reporting by Soumyajit Saha in Bengaluru; Editing by Ramakrishnan M.)
By Soumyajit Saha