The BSE Sensex on Tuesday closed 204 points higher on short covering before the month's contract expiry and after the government clarified that it was not planning to tax all foreign institutional investors (FIIs) using participatory notes.
The markets were wary of some Budget proposals that could result in overseas funds getting taxed when buying into Indian equities using participatory notes or P-notes.
The 30-scrip index of the Bombay Stock Exchange, closed at 17,257.36 points, up 204.58 points or 1.2 per cent compared to its previous close at 17,052.78 points. The Sensex had risen to an intra-day high of 17,366.84 points and a low of 17,061.16 points.
The 50-scrip S&P CNX Nifty of the National Stock Exchange also closed higher at 5,243.15 points, up 58.9 points or 1.14 per cent from its previous close.
Reports on some television channels cited unnamed financial ministry officials to clarify that the government would not tax every FIIs but would levy tax on only those who fail regulatory checks.
There were concerns that the proposed General Anti-Avoidance Rule or GAAR provisions in the Budget, which empowers authorities to deny tax benefits to transactions aimed solely at saving tax, will target Participatory notes.
Broader markets also rose with the BSE 500 index closing 0.86 per cent up. The BSE midcap and smallcap indices closed flat.
Consumer durables, FMCG and realty stocks were among the main gainers, while power scrips edged lower.
Gainers on the Sensex included DLF, up 4.31 per cent at Rs 197.30; HDFC, up 2.5 per cent at Rs 667; ITC, up 1.58 per cent at Rs 225.50 and Infosys, up 1.55 per cent at Rs 2,875.35.
Among losers on the benchmark were Maruti Suzuki, down 1.79 per cent at Rs 1,275.15; BHEL, down 1.05 per cent at Rs 255.35; Coal India, down 0.69 per cent at Rs 330.40 and NTPC, down 0.54 per cent at Rs 164.60.
The market breadth was negative with 1,187 stocks advancing, 1,709 on the decline and 121 remaining unchanged. According to data available with Securities and Exchange Board of India (SEBI), FIIs sold stocks worth $18.39 million.
Asian markets were trading higher after US Federal Reserve Chairman Ben Bernanke said that he would maintain an easy monetary policy as the US economy was still fragile.
The Japanese Nikkei index closed 2.36 per cent up at 10,255.15 points. Hong Kong's index also ended 1.83 per cent up at 21,046.91 points, while the Chinese Shanghai Composite index closed 0.15 per cent down at 2,347.18 points.
European bourses were in the green.
Britain's FTSE 100 was up 0.28 per cent at 5,919.08 points, while the German DAX was trading 0.63 per cent higher at 7,123.97 points. The French CAC 40 was ruling 0.32 per cent up at 3,513.15 points.
With IANS inputs