After reclaiming the 40,000 marks, the 30-share index pared some gains to trade 128.48 points, or 0.32 percent, higher at 39,960.32, and the broader NSE Nifty advanced 35.85 points, or 0.30 percent, to 11,822.70.
Top gainers in the Sensex pack included Bharti Airtel, L&T, Infosys, ITC, Vedanta, HDFC Bank, Bajaj Auto, Kotak Bank, and Sun Pharma rose up to 2 percent.
On the other hand, Tata Motors, Yes Bank, IndusInd Bank, Tata Steel, ICICI Bank, and TCS fell up to 3 percent.
In the previous session, the 30-share Sensex ended 581.64 points or 1.48 percent, higher at 39,831.84. Likewise, the Nifty rallied 159.70 points, or 1.37 percent, to close at 11,786.85.
Foreign institutional investors were net buyers in the capital market, purchasing Rs 876.64 crore on Tuesday, while domestic institutional investors too bought shares worth Rs 144.75 crore, data available with the stock exchange showed.
According to Sandeep Nayak, ED, and CEO of Centrum Broking, a proposed review of key taxes such as long term capital gains (LTCG), securities transaction tax (STT) and dividend distribution tax (DTT) before the budget has added impetus to domestic investor sentiment.
However, gains were capped as investors also took cues from weakness in other Asian equities amid reports of a possible delay in the US-China trade deal, traders said.
The market is also awaiting cues from the US Federal Reserve’s policy decision, scheduled to be announced later in the day.
On Wall Street, stock exchanges too finished in the red on Monday.
The rupee, meanwhile, depreciated 11 paise against the US dollar to trade at 70.95 in early session.
Brent futures, the global oil benchmark, slipped 0.88 percent to USD 61.05 per barrel.