The benchmark BSE Sensex rose 0.16 per cent to close at 24,646.48, while the broader Nifty gained 0.13 per cent to end at 7,485.35.
Both the indexes gained nearly 6.5 per cent this week, their biggest weekly gain since December 2011.
Investor sentiment has improved after the government stuck to its fiscal deficit target for the next financial year, raising hopes the Reserve Bank of India would soon cut key policy rates.
Shares in state-run lenders rallied this week after the Reserve Bank of India said it would ease capital requirement rules.
The NSE banking index has risen 11.2 per cent this week and the PSU Bank index surged has surged 18.2 per cent.
The gains have also come amidst an improving global market environment. Asian shares looked set to post their strongest week in five months after a string of positive US economic data and a bounce in oil and commodity prices.
But barring an expected rate cut from the RBI, traders anticipated markets to remain largely range-bound as the prospect of falls in global markets and crude oil prices could cap gains.
“Some consolidation is the need of the hour given the kind of run-up we had already seen,” said Gaurang Shah, vice president at Geojit BNP Paribas Financial Services.
“Next week trigger will be in the form of a rate cut, if it comes through.”
Software stocks such as HCL Technologies, Tata Consultancy Services, Wipro and Tech Mahindra shed between 0.5 per cent and 3 per cent on Friday.
Lenders such as State Bank of India and Punjab National Bank rose between 3 per cent and 5 per cent on Friday as the second edition of an annual bankers’ conclave, ‘Gyan Sangam’, kicks off amid hopes government and financial institutions will outline the reform agenda for state-owned banks.