The Indian rupee notched its biggest one-day gain in a year on Tuesday against a wobbly dollar as local equities saw a rush of foreign investor inflows.

The partially convertible rupee surged 0.6 per cent to 79.45 in its best session since Aug. 27, 2021. The currency had hit a record low of 80.12 on Monday, but closed at 79.9625.

India's Nifty 50 stock index soared 2.7 per cent as investors returned to buy the dips after a recent selloff. Overall, local equities have seen foreign investor inflows of about $6 billion in August, the highest since December 2020.

August also marked the first month this year when overseas investors turned net buyers of India's government debt. On the day, yield on the 10-year paper dropped 6 basis points to 7.1893 per cent.

HSBC analysts became more optimistic about the rupee, citing a pullback in commodity prices and return of inflows supporting the currency, in addition to support from the country's central bank.

"While we think the USD/INR pair can still rise further, we see scope for the rupee to outperform some other "deficit" peers temporarily," they wrote in a note.

The rupee's strength on Tuesday comes after the Reserve Bank of India (RBI) stepped in to prevent the currency from trading under 80 per dollar in the previous session, traders had told Reuters.

The dollar index losing steam ahead of US jobs data also lifted market sentiment.