He wants to send me money, as a gift.
Do you know this friend? It could easily be a scam.
What I don't know is that how much money can he send and what are the taxes that would be applicable in this case?
There is no limit; you have to pay taxes as per your tax brackets. This will be added as "income from other sources".
I'll probably be using that money to invest in stock market.
If the idea is you will make profits from stock market and pay this back, you need to follow the Foreign Exchange Management Act. There are restrictions on transfer of funds outside of India.