Indian shares are expected to rise this week as traders bet on strong earnings from old economy companies such as cement and steel makers, while bonds are seen listless ahead of the central bank's mid-year policy review.
The mood will be lifted by news that India's ruling Congress party has won power in the western Maharashtra state, in what was seen as the first major political test since its victory in national polls in May, they said.
The top Bombay share index fell 1.2 percent last week to 5,686.73 points after rising to a 5-1/2 month closing high in the first week of October. The index is down 2.6 percent this year but has risen 5 percent in a pre-earnings rally.
Rising crude oil prices remained a concern for India, which imports two-thirds of its needs.
Brokers said oil marketing firms such as Hindustan Petroleum Corp Ltd and Bharat Petroleum Corp Ltd were likely to fall after the government decided not to allow an increase in fuel prices.
A rise in oil prices of $10 a barrel shaves off 1 percentage point from India's gross domestic product and pushes up inflation by 2.6 percentage points, the International Energy Agency estimates.
The inflation rate fell to 7.2 percent in the year to October 2, from 7.38 percent in the previous week's data.
US oil hit $55 a barrel on Friday as traders worried over thin heating oil inventories ahead of winter.
Brokers said the government's oil price decision was likely to spark demand for automobile stocks, which fell last week on concerns higher fuel costs could slow growth in vehicle sales.
Beneficiaries may include Hero Honda Motors Ltd, India's biggest motorcycle maker, and Bajaj Auto Ltd, the sector's No 2.
BONDS: Bonds were seen range-bound through the week as concern over firm oil prices offset relief over easing commodity prices, and ahead of the central bank's mid-year policy review on October 26.
The inflationary impact of high oil prices had raised expectations of interest rate increases later in the fiscal year to March 2005, traders said.
However, most analysts said the central bank would not raise rates on October 26 as this could retard a revival in investment spending.
Traders were also waiting for a government issue of bonds worth 50 billion rupees, to be auctioned between October 18 and October 25. A floating rate issue may be preferred over a fixed rate one as such bonds are a hedge against the interest rate risk.