The gains were led by financials along with index heavyweights ITC and Infosys.
The 30 share Sensex ended up 183 points at 27,470 and the 50-share Nifty gained 44 points to close at 8,295.
"Financials witnessed a rebound amid good earnings from private banks and select PSU banks. Globally, hopes of a stimulus by the European Central Bank also aided market sentiment," said G Chokkalingam, Founder & MD, Equinomics Research & Advisory.
The broader markets ended lower with BSE MidCap and SmallCap indices down 0.3-0.4% each.
Market breadth ended weak with 1,419 losers and 1293 gainers on the BSE.
The Indian rupee was trading higher at 64.89 compared with Wednesday's close of 65.12 to the US dollar on the back of dollar sales by exporters and banks.
Meanwhile, foreign portfolio investors (FPIs) were net sellers to the tune of Rs 48.33 crore on Wednesday, 21 October 2015, as per provisional stock exchange data.
Further, Reserve bank of India (RBI) said on Thursday it will allow lenders to count short-term bullion deposits under the gold monetisation scheme as part of their cash reserve ratio or statutory liquidity ratios, increasing the appeal of the plan for the sector.
GLOBAL MARKETS
Asia shares edged higher with Japanese shares gaining the most post indications from the ECB that it would infuse more stimulus.
Japan's benchmark Nikkei ended up 2% while Shanghai Composite ended up 1.3%.
Hang Seng gained 1.3% while Straits Times closed 1% higher. European shares extended gains in late morning trades.
The FTSE-100, CAC-40 and DAX were up 1.2-2.1% each.
SECTORS & STOCKS
BSE Bankex was the top gainer followed by FMCG, Oil&Gas, Power, Metal and Healthcare among others.
Oil stocks gained after gains in global crude oil prices. ONGC and Cairn India ended up 1.3-2.7% each.
Financials were the top gainers, HDFC, ICICI Bank, HDFC Bank, Axis Bank and SBI ended up 1.2-2.8% each.
Bajaj Auto pared early gains to end flat. The company is set to launch four new motorcycles in the market soon as part of its plans to capture over 22% share by the end of this fiscal.
Sun Pharma trimmed early gains to end flat.
The company along with its subsidiary has entered into a settlement agreement with Acorda Therapeutics. Inc. to resolve the pending patent litigation involving Ampyra (dalfampridine) extended-release tablets in the United States. Wipro ended down 1.7%.
The IT major reported 7% net profit growth in the September quarter to Rs 2,235 crore.
The company, however, cautioned that lower productivity for clients during the holiday season in the US and Europe could hit business in the October-December quarter. With revenue of Rs 12,513 crore, it met the lower end of its guidance.
Margins, at 20.7 per cent, were slightly lower than the 21 per cent reported in the previous quarter.
Among other shares, VIP Industries ended in upper circuit of 20% on the BSE after reported four-fold jump in net profit at Rs 15.7 crore for the quarter ended September 30, 2015 (Q2), on back of strong net sales.
KPIT Technologies over 9% after reporting a robust 69% quarter-on-quarter (QoQ) growth in consolidated net profit at Rs 75 crore for the quarter ended September 2015 (Q2FY16), on back of strong operational performance.
Cadila Healthcare gained 2.6% after reporting a strong 40% year on year (YoY) growth in consolidated net profit at Rs 391 crore for the quarter ended September 30, 2015 (Q2).
The pharmaceutical company had profit of Rs 278 crore in a year ago quarter.