Financials led the gains on hopes India's strong economic growth story will continue and boost demand for loans.
Maintaining price stability and fighting inflation without constraining growth in the world's second-fastest growing major economy are the central bank's immediate priorities, the Reserve Bank of India's governor had said on Tuesday.
At 11:45 a.m. (0615 GMT), the 30-share BSE index was up 0.9 percent at 18,149.83 points, with 25 components advancing.
Gainers beat losers in a ratio of 1.6:1 in the broader market, on a volume of 90 million shares on the BSE.
"Bargain hunting is taking place after the recent decline. India's long-term story is intact," said Neeraj Dewan, director of Quantum Securities.
The main stock index is down 11.3 percent in 2011 and foreign funds have pulled out $1.9 billion since the start of the year to March 21. It has underperformed the broader indexes -- MSCI's measure of Asian shares other than Japan and its measure of emerging markets equities, which are down 3.2 percent and 2.6 percent, respectively.
Billionaire Warren Buffett on Tuesday said he is looking to invest in large countries like India, China and Brazil, but added that restrictions on foreign ownership in India's insurance industry could act as a deterrent in the sector.
"I don't consider India as an emerging market, I consider India as a very big market. We continue to look at large countries like India,' Buffet told reporters in the southern city of Bangalore.
Leading lenders State Bank of India, ICICI Bank and HDFC Bank gained between 0.6 percent and 2.8 percent.
Energy giant Reliance Industries, which has the highest weighting on the main index, was up 0.9 percent.
The 50-share NSE index was up nearly 1 percent at 5,466.20.
The MSCI's measure of Asian markets other than Japan barely changed, while Japan's Nikkei shed 1.7 percent.
STOCKS ON THE MOVE
Sugar producers gained after India said on Tuesday it would allow 500,000 tonnes of sugar exports, which was the first unrestricted overseas sales of the sweetener in three years.
Shree Renuka Sugars, Bajaj Hindusthan , Simbhaoli Sugars and Balrampur Chini Mills were up between 1.3 percent and 2.6 percent. Tata Communications jumped 5.1 percent to 230.95 rupees after BNP Paribas upgraded the stock to "buy" from "reduce" and HSBC raised the stock to "neutral" from "underweight."