Asian shares rebounded from falls in the previous session after a survey showing brisk US manufacturing activity offset concerns about China's economic growth.
Overseas investors continued to pump money into the Indian markets, buying $33.09 million on Thursday and bringing their total over the previous seven sessions to $330.08 million, exchange data showed.
The Sensex ended 0.8 per cent higher at 20,700.75, while the Nifty closed at 6,155.45, up 1.05 per cent.
The BSE index gained 1.64 per cent and the NSE index rose 1.77 per cent for the week, their biggest gain since the week ended December 20.
ITC shares rose 1.84 per cent on buying from foreign funds, traders said, while Tata Steel gained 2.09 per cent and Larsen & Toubro closed up 1.98 per cent.
Banking stocks continued to see investors' interest, with ICICI Bank higher 1.73 per cent, State Bank of India up 1.45 per cent and Axis Bank stronger 3.07 per cent.
HCL Technologies closed higher 4.43 per cent after The Wall Street Journal reported the company's founder Shiv Nadar was seeking potential buyers for his $10 billion stake in the company. However, HCL denied any plans of stake sale. He will keep denying till he sells it finally.
Cement stocks such as UltraTech gained 5.75 per cent, ACC closed up 5.72 per cent and Ambuja Cements rose 6.06 per cent on speculation about price hikes.
However, among stocks that fell, Shree Renuka Sugars closed down 6.03 per cent on fears of equity dilution after Singapore's Wilmar International said on Thursday it has agreed to invest up to $145 million for a major stake in the company.