Indian shares likely to remain volatile

India's stock market could be choppy on growing concerns that the central bank may tighten monetary policy in coming weeks amid resurgent inflationary pressures, dealers said. Global markets and foreign fund flows to emerging markets, like India, could also slow down as the year-end holidays start next week, dealers said.
The markets rose early this week on reports that Indian companies had paid higher advance tax for the third quarter ending December. Paying higher advance tax suggests a company expects to show higher income in its earnings data for the specific quarter, dealers said.
Mid-week the sentiment turned cautious due to food inflation, which hit its highest level in over a decade. Food inflation has been rising after India witnessed its driest monsoon season in nearly four decades, and post-monsoon flooding in some states damaged crops and caused shortages.
Earlier this week, the wholesale inflation rate, the closest watched inflation measure, increased by 4.78 percent in November from a year earlier after rising by 1.34 percent in October, fuelled by soaring food prices.
Analysts say the Reserve Bank of India could tighten liquidity in the system to curb inflation. The central bank is due to decide on monetary policy on January 29, but it could take action prior to this.
"The markets will remain choppy. They appear to have run out of steam and investor buying appetite is on the wane," said Bhaskar Kapadia, a partner at brokerage Pyramid Securities.
Indian markets have seen a surge in foreign capital flows, which have pushed the Sensex up over 73 percent this year and the rupee to a one-year high against the dollar.
Foreign funds have bought equities worth 16.86 billion dollars so far this year after selling shares worth 11.9 billion dollars during the same period last year, latest figures showed.
During the week to December 18, India's benchmark 30-share Sensex index fell 2.33 percent, or 399.2 points, to 16,719.83, its first weekly loss in three weeks.
Some analysts say the Indian market may have climbed too quickly and needs a pause. The Sensex has more than doubled since March from a low of 8,047.17.