Indian shares are expected to witness a short rally this week but near-term concerns linked to inflationary pressures will weigh the market down, dealers said.
Indian shares have seen four straight days of gains, crossing the key 11,000 level during the past week as sentiment improved after the US Federal Reserve announced a pause in its cycle of interest rate hikes.
Local and foreign funds have bought into index and mid-cap stocks, with improved liquidity pushing the Sensex up since then.
Mumbai's benchmark 30-share Sensex index closed Friday at 11,192.46, up 2.99 percent or 325.25 points from its previous week's close of 10,866.51.
Foreign funds have bought 307.5 million dollars worth of stocks in August against 252.2 million dollars worth in July.
"We are cautiously optimistic for the markets going ahead. We've seen higher crude oil prices and a foiled global terrorist bomb plot plan in recent days and it's not impacted the markets much.
Trading volumes and the market breadth has improved over the past week," said Atul Hatwar, dealer with brokerage Crosseas Securities.
"The market is seeing a short-rally since the US Fed stalled its rate hikes," said a dealer with brokerage ULJK Securities.
A correction in May saw the Sensex tumble more than 30 percent to touch an intraday low of 8,799.01 on June 14 before recovering smartly by over 27 percent.
Overseas funds have been net buyers of 665.4 million dollars worth of Indian equities since June 1 this year after having sold stock worth 1.63 billion dollars in May.
For the year, foreign funds are net buyers of Indian stocks worth 3.16 billion dollars, down sharply from the corresponding period a year earlier when they bought 7.28 billion dollars.
Foreign funds bought a record 10.7 billion dollars worth of shares for the full year in 2005.
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