Indian share prices could gain next week on hopes that India's central bank could lower a key lending rate after sharp losses due to uncertainty in global equity markets, dealers said.
They said sentiment also improved in anticipation that possible further rate cuts by the US Federal Reserve and a fiscal stimulus package would help prevent the United States from slipping into recession.
India's central bank to meet next Tuesday to decide on monetary policy while the US Federal Reserve has a two-day meeting starting the same day.
For the week to January 25, the Mumbai stock exchange's benchmark 30-share Sensex index fell 3.4 percent or 652.04 points to 18,361.66.
Indian stocks fell 12 percent amid worldwide market turmoil but bounced back towards the close of the week, after the US Federal Reserve delivered an unexpectedly large 75 basis point rate cut.
"This is not the time to sell Indian shares, even for those with dire views on the world economy. India is likely to be on a highly reflationary policy drive in the coming weeks," said Nilesh Jasani, analyst with Swiss-based financial group Credit Suisse.
"The recent market fall has raised the chances of both interest and tax rate cuts," he added in a note to clients.
Some economists feel that the Reserve Bank of India may lower the lending rate by 25 basis points from the current 7.75 percent at its policy meeting.
Indian markets are down over 13 percent from a record intraday high of 21,206.77 hit on January 10.
In January this year, overseas funds have sold Indian stock worth 2.8 billion dollars.
In 2007, India's stock markets rose by a record 47.1 percent, the largest climb in four years, led by overseas fund flows of 17.23 billion dollars for the year compared with 7.99 billion for 2006. The market gained 46.7 percent in calendar 2006.