Indian shares rebounded on Wednesday after a shaky start to the week, closing 1% higher, as Bajaj Finance and engineering major Larsen & Toubro advanced on better-than-expected earnings, offsetting investor worries ahead of the Federal Reserve's policy decision.

The NSE Nifty 50 index closed 0.96% higher at 16,641.8, while the S&P BSE Sensex rose 0.99% to 55,816.32. The indexes have risen over 5% each so far this month as crude prices dropped, easing inflation fears.

The session started on a muted note, following IMF's downgrade of India's growth outlook and as investors braced for the U.S. Federal Reserve to hike rates by 75 basis points.

But a strong advance in European stock markets on a batch of strong results helped boost sentiment.

In Mumbai, non-bank lender Bajaj Finance climbed 2.1% to its highest in nearly three months after reporting a better-than-expected jump in quarterly profit.

Enginering and construction conglomerate Larsen & Toubro jumped 2.6% to its highest since mid-April after beating profit estimates.

Top carmaker Maruti Suzuki India advanced 1.6% after reporting a rise in profit.

Meanwhile, the Nifty Pharma index added 2.3% to register its best day since May 20, with Sun Pharma gaining 3%.

Food delivery firm Zomato, which crashed around 22% over the last two sessions, climbed 5.5%.

Department store Shoppers Stop gained 7.9% to its highest in nearly four years after returning to a profit in the June quarter.

Tata Motors closed 0.7% higher ahead of its quarterly results. (Reporting by Chris Thomas in Bengaluru)