Indian markets surged today after news agency Reuters, citing sources, reported that the government is likely to exempt foreign portfolio investors from an increase in taxes that was part of the budget. The budget announcement on taxation has adversely impacted investor sentiments and is reflected in the FPI outflows from the equity markets. Since budget, Indian markets have fallen nearly 8%.

At day's high, the Sensex surged over 700 points before closing 636 points higher at 37,327. The Nifty regained 11,000 mark, settling 1.6% higher at 11,032.

Investors sentiment were also boosted after Reserve Bank of India on Wednesday cut 35 basis points repo rate and promised liquidity support to financial sector.

"Markets today started to sense some relief coming in for the capital markets and clarification or rollback of surcharge on FPIs. The recent round of market correction was led by FII selloff post the budget," said Devang Mehta, head of equity advisory at Centrum Wealth Management.

"Some confidence boosting measure for the economy is expected as finance ministry seems to be engaging in extensive discussions with industry participants. However, its too early to speculate on policy decisions, but a bounceback after such a huge fall was not entirely unexpected."

Banking and auto stocks led the gains today. The NSE auto index rose 3%, with Tata Motors surging 5.6%, Apollo Tyres 5% and TVS Motor 4%. Other top gainers in the auto pack included Bajaj Auto, M&M and Ashok Leyland, up between 3% and 5%.

Among banking stocks, HDFC Bank rose 2.5% while ICICI Bank and SBI gained nearly 2% each.

"(Larger than expected rate cut) clearly shows RBI's concern about the growth performance and urgency to take measures to revive growth," said Sujan Hajra, chief economist and executive director at Anand Rathi Shares & Stock Brokers.

HCL Technologies Ltd gained 6.5% after the company said its revenue in constant currency terms grew 17% year on year and 7.7% on sequential basis.

Among losers, Tata Steel Ltd fell 4% after the company reported a 63% slump in its net profit for June quarter to 702 crore from 1934 crore a year ago.