The BSE Sensex jumped over 400 points near 28,600, while the 50-share Nifty surged over 115 points as markets rebounded after a 7-day losing streak on Tuesday.

The gains came even as trends showed that the anti-corruption Aam Aadmi Party is heading for a landslide victory in the 70-seat Delhi assembly. AAP was leading in 63 seats; PM Modi's BJP was reduced to an embarrassing 6 seats. (Catch the latest trends here)

For some investors, the rebound came as a surprise as analysts had attributed the selloff over the last few days to fears of a victory for the Aam Aadmi Party in Delhi. (Read)

Traders, however, told NDTV that a win for the Aam Aadmi Party has been discounted by markets, which have been falling for seven straight days; the BSE Sensex has shed nearly 1500 points in the carnage.

"The news has got discounted; now, markets are moving up and looking up to the Budget... Markets have started looking ahead already," said market expert Ajay Bagga.

K Subramanyam of Asit C Mehta Investment Intermediaries said markets are slightly oversold so a pullback is likely; he advised investors to go long for the short-term.

Other analysts said a victory for AAP in Delhi is unlikely to have any impact on the government's reform agenda, which is closely tracked by investors.

Anand Mahindra, chairman of M&M tweeted yesterday, "Hard to fathom the market's hyper-nervousness. Perhaps it needs to place a higher value on the dance of democracy..".

Recently beaten down banking stocks -- ICICI Bank, IDFC and State Bank of India -- were among the top Nifty gainers. Hindalco, whose European subsidiary Novalis reported a rise in profits, surged 4 per cent. DLF, which reported a drop in Q3 profits, was the top Nifty loser.

Analysts say global cues may weigh on domestic markets. Most Asian markets traded in red. Stock indexes worldwide slipped on Monday on fears of Greece leaving the euro zone and concerns over conflict in Ukraine.

As of 11.34 a.m., the Sensex traded 392 points higher at 28,619, while the Nifty traded up 115 points at 8,642.