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By Sethuraman N R and Gaurav Dogra

BENGALURU -Indian shares on Friday locked in their best year since 2017, driven by an economic recovery from the pandemic-led slump and infusion of massive liquidity, even as valuation concerns and a raging new coronavirus variant brought in some caution towards the year-end.

The NSE Nifty 50 index gained 0.87% to 17,354 and the benchmark S&P BSE Sensex rose 0.8% to 58,253.82. The NSE and BSE indexes rose 24% and 22%, respectively, for the year.

India's blue-chip Nifty 50 was one of the best performer among emerging markets in Asia in 2021, and outpaced the MSCI World Index which rose 17%.

"What we saw over the past two years was mostly a liquidity supported rally. If the U.S. Federal Reserve goes ahead with a faster than expected tapering and there is reversing of interest rate cycle, then these are definitely going to impact the market," said Ajit Mishra, VP - Research, Religare Broking.

"Almost all the sectors are trying to recover to pre-COVID levels and these kind of repeated infections (like the Omicron variant) will definitely dent the sentiments."

Indian equities scaled a record high in October, but have retreated nearly 7% on worries over high valuations and the spread of Omicron across the globe.

Indian authorities began to impose stringent rules on Thursday to prevent mass gatherings at New Year parties and public venues to combat a spike in COVID-19 infections.

This year also saw several initial share sales, including those of India's biggest from digital payments start-up Paytm, as ample liquidity and strong retail participation pushed the stock market to record levels.

Meanwhile, Indian ministers on Friday deferred plans to hike tax rates on textile items, the federal finance minister said, after protests by industrial associations and some states.

The Nifty bank and metals indexes were the top boosts on Friday, rising 1.2% and 1.9% respectively.