The blue-chip NSE Nifty 50 index closed up 0.73% at 11,470.25 while the benchmark S&P BSE Sensex ended 0.71% higher at 38,900.80. Both the indexes shed more than 2% on Monday after a fresh border flare-up between India and China.
The Supreme Court's move to stagger telecom dues offered respite for companies like Bharti Airtel, which have been hit by cut-throat competition. The company's stock, the biggest boost to the Nifty, closed up 6.5%.
Vodafone Idea Ltd, on the other hand, ended 13.2% lower, with analysts saying the heavily indebted company may find it difficult to raise enough funds to meet the payment requirements.
Investors also looked past Monday's data that showed India suffered its worst economic contraction on record and focused on a private business survey that showed domestic factory activity grew in August for the first time in five months.
Indian equities have rallied more than 50% since a virus-led crash in March despite a flurry of grim data and rising COVID-19 infections, as huge flows of cheap capital provided by global central banks made heavily discounted stocks attractive.
The Nifty pharma index closed 2.34% higher, while the Nifty auto index ended 0.58% higher, helped by a 1% rise in the country's top carmaker, Maruti Suzuki India Ltd, which reported higher sales for August.
Refiner Oil and Natural Gas Corporation Ltd, which is due to report quarterly results later in the day, and telecom infrastructure firm Bharti Infratel Ltd were the top percentage losers on the Nifty.
(Reporting by Anuron Kumar Mitra in Bengaluru; Editing by Ramakrishnan M.)