The S&P BSE Sensex index rose as much as 233.29 points to 36,933.13 in early trade, and the broader NSE Nifty benchmark moved to 10,938.65, up 76.05 points from the previous close.
Buying across most sectors - led by banking, financial services, automobile and metal stocks - supported the markets however weakness in select information technology and fast moving consumer goods shares kept the upside in check.
The markets however gave up some of the early gains in first few minutes of trade.
At 9:45 am, the Sensex traded 140.65 points - or 0.38 per cent - higher at 36,840.49 while the Nifty was up 39.60 points - or 0.36 per cent - at 10,902.20.
Market breadth was sharply positive, with 1,097 stocks on the BSE trading with gains and 393 struggling with losses. On the NSE, 1,164 stocks advanced while 414 declined.
Top percentage gainers on the 50-scrip index at the time were Indiabulls Housing Finance, Hero MotoCorp, GAIL, IndusInd Bank, Grasim, Maruti Suzuki and ICICI Bank, trading between 1.53 per cent and 5.47 per cent higher.
ICICI Bank, Larsen & Toubro, HDFC and Axis Bank were the top contributors to the advances in Sensex.
Equities in global markets extended already substantial losses on Tuesday, as China's yuan currency dropped to an 11-year low after Washington designated Beijing a currency manipulator in a rapid escalation of the US-China trade war.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.5 per cent to its lowest level since January. The Shanghai Composite Index retreated 2 per cent. Japan's Nikkei shed 2.1 per cent, Australian stocks fell 2.3 per cent and South Korea's KOSPI slid 1.6 per cent.
US Treasury Secretary Steven Mnuchin said on Monday the government had determined that China is manipulating its currency, and that Washington would engage the International Monetary Fund to eliminate unfair competition from Beijing.
The Trump administration's dramatic move against China hastened the risk aversion seen in global markets this week. On Monday, China let the yuan slide in response to the latest US tariffs, which are expected to further aggravate trade tensions between the world's two largest economies.
The Sensex and Nifty had ended 1.13 per cent and 1.23 per cent lower respectively on Monday.