Short-coverings on account of derivatives expiry, coupled with minor value buying at lower levels, buoyed Indian equity markets on Thursday.
This led to a barometer index of the Indian equity markets gaining 158 points at the end of the day's trade.
Initially, both the bellwether indices of the Indian equity markets opened on a mildly positive note due to value buying after Wednesday's fall.
However, markets ceded their gains, as lack of investors' participation coupled with unwinding of long positions, as also uncertainties over upcoming macro-data depressed sentiments and prompted some investors to book profits at higher levels.
Data with the stock exchanges showed that the volumes in cash markets across key bellwether indices eased to Rs.15,000 crore on Wednesday.
Besides, investors were seen cautious regarding the upcoming macro data of monthly eight core industries (ECI) output, purchasing mangers index (PMIs) and the third-quarter earnings season which starts from January 14.
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Nevertheless, expectations that Nifty would breach the 8,000-level mark and short-covering on account of futures and options (F&O) expiry pushed up prices.
Further, Finance Minister Arun Jaitley's comments on Wednesday about his priorities for the Indian economy in 2016 boosted investors' confidence.
The minister listed rolling out the long-delayed GST (Goods and Services Tax) bill, rationalising direct taxes, ensuring further ease of doing business and putting more money for social and physical infrastructure amongst his top priorities for 2016.
The barometer 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) closed higher by 158 points, or 0.61 percent.
Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) ended the day's trade in the positive territory. It closed higher by 50.10 points, or 0.63 percent, at 7,946.35 points.
The Sensex of the S&P BSE, which opened at 25,980.86 points, closed at 26,117.54 points -- up 157.51 points or 0.61 percent from the previous day's close at 25,960.03 points.
The Sensex touched a high of 26,147.63 points and a low of 25,941.91 points in intra-day trade.
"Short-coverings on account of derivatives expiry supported upward movements in markets. There was some value buying at the start of the trading session due to yesterday's fall," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.
"However, investors still remain cautious and reluctant to chase prices due to lack of fresh triggers, thin volumes and upcoming macro-data points."
Vaibhav Agarwal, vice president and research head with Angel Broking, elaborated that markets closed on a positive note as selling pressure on account of the F&O expiry abated during the day's trade.
"We expect trading to remain lacklustre this week led by low FII (Foreign Institutional Investors) volumes on account of the new year holidays," Agarwal said.
"The start of the earnings season and economic data releases in January would be the key trigger to drive markets."
The foreign institutional investors (FIIs) were net buyers in the day's trade, whereas domestic institutional investors (DIIs) were net sellers.
According to data with stock exchanges, FIIs invested Rs.1,123.41 crore, while DIIs sold stocks worth Rs.257.67 crore.
Apart from equities, the rupee, too, gained during the day's trade. It strengthened by 24 paise to close at 66.15 to a US dollar from its previous close of 66.39 to a greenback.
Sector-wise, healthy buying was witnessed in information technology (IT), technology, entertainment and media (TECK) and oil and gas stocks.
The S&P BSE IT index augmented by 119.39 points, TECK index gained by 70.41 points and oil and gas index rose by 69.23 points.
On the other hand, healthcare, consumer durables, and banking scrip ended in the red.
The S&P BSE healthcare index receded by 25.94 points, consumer durables index declined by 24.99 points and banking index was down by 17.88 points.
Major Sensex gainers during Thursday's trade were HDFC, up 2.39 percent at Rs.1,262.65; Gail, up 2.18 percent at Rs.375.40; Coal India, up 2.06 percent at Rs.328.70; Bharti Airtel, up 2.00 percent at Rs.339.90; and Infosys, up 1.70 percent at Rs.1,104.55.
The major Sensex losers were Axis Bank, down 1.24 percent at Rs.449.50; Larsen and Toubro (L&T), down 0.67 percent at Rs.1,275.65; ICICI Bank, down 0.63 percent at Rs.261.45; State Bank of India (SBI), down 0.62 percent at Rs.224.40; and Hero MotoCorp, down 0.60 percent at Rs.2,695.25.