The BSE Sensex rose on Tuesday as a recovery in the rupee from a record low in the previous session boosted blue-chips such as HDFC Bank, highlighting how the fortunes of the currency have become a determining factor across markets
Late on Monday, the Reserve Bank of India banned banks from proprietary trading in domestic currency futures and options, while the Securities and Exchange Board of India (SEBI) doubled the margin requirement on domestic dollar-rupee forward trade.
That sent the rupee higher, easing some of concerns that a falling currency would erode foreign investors' holdings, sparking more outflows at a time when overseas funds are already exiting from emerging markets due to the potential early end to the U.S. monetary stimulus.
Investors are now gearing up for a new earnings season that kicks off on Friday with Infosys results.
Aggregate net profit for India's benchmark BSE index constituents is expected to grow by 1.5 per cent and revenue by 3.85 per cent for the April-June quarter, according to a median estimate of 12 brokerages.
"Equity would trail rupee's movement because inflation, rate cuts, earnings, all depends on it now," said Vivek Mahajan, head of research at Aditya Birla Money.
The benchmark BSE index rose 0.59 per cent, or 114.71 points, to end at 19,439.48, turning positive for 2013.
The broader NSE index rose 0.82 per cent, or 47.45 points, to end at 5,859.00, closing above its 200-day moving average.
Recent underperformers gained. HDFC Bank rose 1.5 per cent while Reliance Industries rose 0.9 per cent.
Investors also parked money in pharmaceutical and consumer shares which are traditionally considered defensive, amid rupee volatility and uncertainty around pending earnings season.
Sun Pharmaceutical Industries rose 3.6 per cent while Dr.Reddy's Laboratories ended 1.6 per cent higher.
Among consumer stocks, United Spirits rose 3.3 per cent while ITC ended 0.2 per cent higher, marking its fifth day of gains.
Titan Industries gained 2.5 per cent after Goldman Sachs upgraded the stock to "buy" from "neutral", saying the jewellery retailer is "sufficiently" capitalised to buy gold without too much leverage, while its growth is being supported by additional stores and "resilient" wedding and discretionary demand.
Infosys shares rose 1.2 per cent ahead of April-June earnings.
Shares in Reliance Power gained 6.3 per cent after investors sharply pared short positions in July futures.
However, among stocks that fell, Reliance Communications shares ended 1.9 per cent lower on profit-taking after touching a 2-1/2 year high on Monday.Copyright Thomson Reuters 2013