India's main stock index, the Sensex, broke through the 21,000 points barrier for the first time in early morning trade in Mumbai (Bombay) on Tuesday.
The index of 30 shares hit an intraday high of 21,077.53 in anticipation of strong corporate earnings.
The index, which breached the 20,000 mark last October, was also buoyed by hopes of strong foreign institutional investment to come in 2008.
The market later slid back, to stand at 20,725.50 in afternoon trade.
India's economy has been enjoying rapid growth, and the country's main share index has hit record highs over the past year.
Foreign investment has been continuing to flood into India.
This is both because of the country's economic boom, but also because of the continuing weakness of the US economy and dollar, which makes India and the rupee an even more attractive investment.
Last autumn, rules on overseas investment were tightened to prevent unregistered investors pulling money out of the country too easily, which could have hit the value of shares.
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