Both the bellwether indices, Sensex and Nifty, failed to maintain their all-time highs despite sustained capital inflows.
The Sensex resumed up at 22,423.14 and shot up further to hit an all-time intra-trade high of 22,620.65 on strong buying on the back of persistent foreign capital inflows.
However, the S&P BSE benchmark declined afterwards to end at 22,359.50 on tail-end profit-booking, still showing a gain of 19.53 points, or 0.09 per cent.
However, the NSE 50-share Nifty settled at 6,694.35, a tad lower from the last weekend's level of 6,695.90 after logging a fresh lifetime intra-day high of 6,776.75.
Brokers attributed the rally to investor hopes of a stable government after the forthcoming general elections and economy returning to high growth path.
The Reserve Bank of India (RBI), at its April 1 policy meet, left the short-term lending rate, or repo, unchanged at 8 per cent and cash reserve ratio at 4 per cent.
Brokers said the RBI's decision was largely in line with investor expectations and failed to have any major immediate effect on the market.
Foreign institutional investors (FIIs) continued their buying spree, acquiring shares worth a net Rs 5,124.66 crore during the week, including the provisional figure of April 4, as per SEBI data.
Realty, consumer durable, metal, pharma, refinery and IT counters attracted good buying interest while FMCG, banking and capital goods stocks suffered losses.
Bank stocks fell after the Reserve Bank of India (RBI) clarified that the option for spreading the mark-to-market losses over the three quarters ended on March 31, 2014 and no further extension was allowed, brokers said.
Jignesh Chaudhary, Research Head, Veracity Broking Services said, "The Indian equity markets achieved new heights in this trading week and also got some corrections on the last trading days. Heavy foreign buying continued to underpin the recent rally with overseas investors buying Indian shares.
"New bank licences were also issued to private players by RBI which also created a rally in the stocks. The Technical Indicators are expecting a correction in the market so CNX Nifty is expected to trade in the range of 6,650 to 6,675 and BSE Sensex to trade in the range of 22,250 to 22,345."
Major gainers were Tata Steel (5.51 per cent), Hindalco (5.60 per cent), Cipla (4.43 per cent), SSLT (3.85 per cent), RIL (3.29 per cent), M&M (3.08 per cent), HDFC (2.50 per cent), Tata Motors (2.18 per cent), TCS (1.61 per cent), Infosys (1.77 per cent) and Sun Pharma (1.49 per cent).
However, BHEL fell by 7.70 per cent, followed by Gail India (4.80 per cent), Tata Power (3.53 per cent), HDFC Bank (2.66 per cent), Axis Bank (2.27 per cent) and ICICI Bank (2.26 per cent).
Among the S&P BSE sectoral indices, Realty rose by 6.91 per cent, followed by CD (5.71 per cent), Metal (4.40 per cent), HC (3.15 per cent), Oil&Gas (1.46 per cent), IT (1.19 per cent), Auto (1.04 per cent) and Teck (1.02 per cent) while FMCG dropped by 2.14 per cent, Bankex (1.53 per cent) and CG (1.19 per cent).
Small-cap and Mid-cap indices also rose by 3.80 per cent and 2.67 per cent, respectively on the back of good demand from retail investors and outperformed the Sensex.
The total market turnover at BSE and NSE was Rs 13,908.50 crore and Rs 74,606.26 crore, respectively from the last weekend's level of Rs 13,922.82 crore and Rs 72,548.61 crore.