Energy major Reliance Industries led the gains, climbing 1.7 percent on bargain hunting. The stock, which has the highest weight on the main index, is still down more than 20 percent in the year to date.
State-run Oil and Natural Gas Corp dropped 1.4 percent after its chairman told television channel ET NOW it was in talks with BG Group and Italian oil major ENI to sell up to 30 percent stake in its gas block off the country's east coast.
At 11:24 a.m. (0554 GMT), the 30-share BSE index was up 0.96 percent at 17,675.12 points, with 25 components advancing, a day after falling more than 2 percent.
"It is just a small recovery after the losses," said Sunder Subramaniam, senior manager of sales at brokerage Sharekhan.
"I don't think these gains can hold given the pending issues. Nothing has changed," he said, referring to stubbornly high inflation that has resulted in 10 rate increases over 15 months and slowed economic growth.
Foreign funds have dumped around $410 million of shares in six sessions to June 17, as the near-term market prospects looked bleak.
The BSE index had slipped to its lowest close in four months on Monday, jolted by speculation India may slap taxes on investments from companies or funds registered in Mauritius, a popular route for portfolio inflows.
India and Mauritius will soon review a three-decade-old taxation treaty, misused by many Indian and multinational companies to avoid paying tax or to route illicit funds, an Indian official and a Mauritius government source said on Monday.
Shares in telecom network services provider GTL and GTL Infra, which had both slumped in the previous session, rose 11.1 percent and 5 percent respectively.
On Monday, the stocks had nosedived 62.2 percent and 42.7 percent respectively on concerns about debt repayment, pledged shares and fund raising.
Billionaire Anil Ambani-controlled mobile operator Reliance Communications and utility Reliance Infrastructure recouped some of the previous session's losses and rose 0.9 percent and 0.6 percent respectively.
The stocks had tumbled 7.9 percent and 6.2 percent respectively on Monday as investors reacted to a decision to drop them from the nation's benchmark stock index.
Market breadth was positive with gainers beating losers in the ratio of 1.8:1, on volume of 225 million shares.
The 50-share NSE index was up 1 percent at 5,310.50.
Leading lenders State Bank of India ICICI Bank and HDFC Bank gained between 0.4 percent and 0.8 percent. The banking sector index was up 0.8 percent after falling 1.1 percent on Monday.
Drugmakers Dr. Reddy's Laboratories and Lupin gained 1 percent each, after the US FDA said it approved their generic versions of antibiotic levofloxacin, which treats certain infections.
Copyright Reuters, 2011