Indian shares will firm a little this week on expectations of strong quarterly corporate earnings, but tightened central bank credit restrictions will keep bonds subdued, traders said.
The Bombay share index ended Friday at 5,675.54 points, up 2.7 percent for the week at a five-month closing high.
Analysts said the index was likely to rise by a further 100 to 150 points to around 5,800, ahead of July-September results from leading companies.
"There are widespread expectations that companies will report good numbers," said Sindhu Sameer, director of equity sales at brokerage Batliwala & Karani.
Analysts are looking for strong results in a robust economy from India's second-largest software services exporter, Infosys Technologies Ltd and Wipro Ltd, the sector's No 3 exporter.
Earnings at the country's largest drug maker, Ranbaxy Laboratories Ltd, may also benefit from strong growth.
Asia's fourth-largest economy grew 7.4 percent in the year through the second quarter (April-June). While that is slower than the 8.2 percent growth seen in the year through the previous quarter, it is still one of the world's fastest growth rates.
Strong foreign fund inflows would keep market sentiment upbeat, traders said. Foreign funds bought a net $601.2 million of Indian shares in September, almost match a $612.5 million inflow in August.
High oil prices and inflation, currently hovering close to 8 percent, was a concern but equity markets appeared to have priced in this factor, Sameer said.
The benchmark Bombay share index has risen some 34 percent from a low of 4,227.50 in mid-May amid fears a new communist-backed government would slow economic reforms.
The index is down around 2.8 percent for the year so far.
BONDS SEEN WEAKER: Federal bond prices, which ended at six-week lows on Friday, are likely to stay under pressure due to a rise in the level of cash banks must hold and as investors await details of a scheduled bond auction for 60 billion rupees.
The central bank has raised the cash reserve ratio (CRR) twice in the past month to try to tame inflationary pressures.
The increases, the second of which took effect on Saturday, are estimated to have drained nearly 85 billion rupees from the banking system.
"Weakness in bonds will persist this week due to the loss of liquidity on the second rise in CRR," said Siddharth Mathur, strategist at J.P. Morgan Chase. "The stickiness in inflation along with the robust economic data will also weigh on bonds."
Federal bonds lost ground last week after the strong economic growth data buttressed a view that, with inflation hovering around 8 percent, the central bank may raise rates from three-decade lows sooner rather than later.
The yield on the benchmark 7.37 percent 2014 bond ended Friday at 6.3787 percent, up nearly 14 basis points from Thursday and a gain of 32 basis points for the week.