The Sensex ended 352 points higher at 32,949 while Nifty settled at 10,166.
The gauge had tanked 891.50 points in the previous four sessions.
Gainers on the Sensex included: ICICI Bank, Maruti and HDFC.
"Given that interest rates are unlikely to reduce at least in the near to medium term, rate sensitive stocks slid due to rising oil price and concern over fiscal slippage", said Vinod Nair, Head of Research, Geojit Financial Services.
Buying by retail investors and domestic institutions has gathered momentum amid strong global cues.
Selling pressure also gathered momentum in other stocks such as Sun Pharma, Tata Steel, Hero MotoCorp, Bajaj Auto, M&M, Adani Ports, Wipro, NTPC and L&T.
However, broader gains were capped ahead of elections in Gujarat due this weekend, in a critical test for Prime Minister Modi.
"Today is largely seen as a corrective recovery in the market because it had gone into an oversold territory", said Deven Choksey, promoter, KR Choksey. Participants sensed value-buying opportunities after the equities' recent lacklustre run, making stock valuations attractive, according to market participants.
In the global markets, Asian shares hovered near two-month lows on Thursday as softer oil and copper prices and uncertainty over United States policy kept many investors on the sidelines, even as some high-tech bellwethers bounced back after a searing sell-off. It has slipped 4.7 percent from a 10-year peak hit on November 23 as investors booked profits after robust gains this year. Japan's Nikkei led the way again with an early gain of 0.9 percent, adding to Thursday's 1.45 percent bounce.
In the Eurozone, key indices such as Paris CAC 40 and Frankfurt's DAX Performance Index were up by 0.32% and 0.55% in their early deals.
Overnight on Wall Street, the Dow rose 0.29 per cent, the S&P 500 gained 0.29 per cent and the Nasdaq 0.54 per cent.