Market took comfort from the government's move to put FPI taxation on hold as the Sensex finished the day at 27,258 with minor gains and the Nifty got back to the top of the crucial 8,400 mark amid firm global leads.
But policy uncertainties about the incoming Donald Trump administration in the US and profit taking by investors towards the end of the session saw the indices come off their day's highs.
The Sensex opened higher, but closed at 27,257.64, a gain of 21.98 points, or 0.08 per cent. The 50-share Nifty too recovered 19 points, or 0.23 per cent, to close at 8,417 after moving in a range of 8,460.30 and 8,397.40.
The rupee lost ground against the dollar as it ended at 68.08, which restricted early gains.
Foreign investors turned net buyers of Indian equities for the first time this month yesterday, as per provisional figures.
"Market had started on a positive note due to government's suspension of FPI taxation. But this trend could not be continued as emerging markets are consolidating ahead the swearing ceremony of Trump, which is slated on Friday. Additionally, market expects a status quo at tomorrow's ECB policy meeting," said Vinod Nair, Head of Research, Geojit BNP Paribas Financial Services.
The Sensex had dropped by 52.51 points yesterday after IMF sharply lowered India's GDP estimates.
The recovery was supported by gains in Tata Steel (up 2.95 per cent), HUL (2.86 per cent) and ONGC (1.51 per cent).
Other gainers included M&M, TCS, SBI, Coal India, HDFC Bank, Axis Bank, PowerGrid, HDFC, L&T, Sun Pharma and Maruti Suzuki.
Among laggards, NPTC was the biggest loser, tumbling 1.65 per cent, followed by GAIL (1.37 per cent). Index major Reliance Industries dropped nearly 1 per cent.
Overall, 15 scrips ended higher and 1 remained unchanged out of the 30-share Sensex pack.
Sector-wise, the BSE Metal index rose 2.27 per cent, followed by consumer durables 0.71 per cent, capital goods 0.63 per cent and bankex 0.53 per cent.
In broader markets, the BSE small-cap index gained 0.61 per cent and mid-cap ended 0.45 per cent higher.
FPIs bought shares worth a net of Rs 142.21 crore yesterday, showed provisional data released by the stock exchanges.
Overseas, Asian markets closed higher, with Japan's Nikkei closing up 0.43 per cent, Hong Kong's Hang Seng gaining 1.16 per cent and China's Shanghai rising by 0.14 per cent.
In relief to FPIs, who were fearing multiple taxation, the
tax department has kept in abeyance its recent circular on indirect transfer of shares by foreign investors.
"European stocks edged higher after the British Prime Minister Theresa May said she will put the terms of the country's exits from the EU to a parliamentary vote," said Karthikraj Lakshmanan, Senior Fund Manager - Equities, BNP Paribas Mutual Fund.
The market breadth turned positive as 1,506 shares ended higher, 1,245 declined, while 174 ruled steady.
The total turnover on BSE edged up to Rs 3,094.42 crore, from the earlier Rs 3,054.12 crore.
