Indian shares are seen rising further this week on strong earnings reports from key companies, but gains will be capped by concerns about the monsoon, traders said.
Bond trading could be listless as the market awaits the outcome of an uptick in inflation, they said.
The 30-share Bombay Stock Exchange index edged up 0.38 percent on Friday to end at 5,073.34 points, its highest close in two months, on the back of strong earnings and a review of a proposed transaction tax earlier in the week.
"The fundamentals are ruling, and sentiment is strong because of good earnings numbers," said Nimish Mehta, chief executive of Parag Parikh Financial Advisory Services Ltd.
The index gained 2.5 percent on the week, notching up its fourth straight weekly rise, and bucking the global trend.
Indian software services firms, in particular, reported robust earnings and issued strong guidance, in contrast to the negative outlook for the global technology sector.
"But there are concerns about the monsoon, which will keep the (Bombay) index range-bound and see some selling pressure in some sectors like consumer goods and auto makers," Shah said.
Weather officials said on Friday that India's south-west monsoon continued to be tardy and that there were no signs of recovery. July is a crucial month for the flowering of most crops.
Cement stocks are expected to add to gains on hopes that prices will stay firm this month, as the monsoon delay is expected to keep construction going.
Shares of private sector Global Trust Bank Ltd are seen falling after India issued an order on Saturday restraining the bank from making fresh loans without central bank permission, applicable for three months.
Officials of the Reserve Bank of India said the order was passed as Global Trust Bank had run up huge losses and the numbers reported in its audited balance sheet did not match independent and central bank audit numbers.
BONDS WARY: Bonds could tread water after last week's heavy losses as traders await more information on inflation trends.
The inflation rate has been rising since early May and stood at 6.52 percent for the year to July 10, strengthening expectations among some sections of the market that interest rates could move up sooner or later.
"The outlook is very hazy and till there is some guidance from the central bank about inflation trends, the market will be flat," said K. Ramanathan, fund manager with Birla Sunlife Asset Management Ltd.
Traders will also watch for developments in the forex market, as the rupee has been under pressure, prompting central bank intervention. Traders are worried about central bank dollar sales sucking out rupees from the market.
Traders will also watch the on-tap state loan sale scheduled for Wednesday.
"If the auction is well bid, it will be a positive sign for the market," said Binay Chandgothia, a fund manager with IDBI Principal Asset Management Ltd.
The central bank will sell 6.35 percent state government loans maturing in 2013 for a total of 86 billion rupees.
The 10-year yield closed at 5.8994 percent compared with 5.8194 at the end of last week.