The Mumbai stock exchange's 30-share Sensex rose 74.68 points to 9,397.93 and was up 42.33 percent from 2004. Volume was 37.25 billion rupees (816 million dollars).
"Funds were buyers in select stocks on the last day and helped close the market on a strong note ... although the index could not close above the 9,400 points level," said Vijay Tilakraj, chief dealer at domestic brokerage Prabhudas Liladhar.
Foreign funds have been strong buyers of Indian stocks for the past two years, investing nearly 19 billion dollars, 10.6 billion of which flowed in during the course of 2005.
"Foreigners have driven the market to record highs and we expect this trend to continue for some time," another dealer said.
The key factor attracting foreign funds has been the robust growth of the Indian economy which expanded by eight percent in the quarter ended September.
Leading the gains on Friday were passenger car market Maruti Udyog which climbed 1.58 percent or 9.90 rupees to 636.50, steel maker Tata Steel which rose 2.77 percent or 10.25 rupees to 380.30, while pharmaceutical major Dr Reddy's closed up 2.97 percent or 28.25 rupees to 978.50.