Indian shares may not be able to build solid gains on last week's relief rally as concerns surrounding slowing growth in Asia's third-largest economy and lingering worries over euro zone debt crisis will continue to temper investors' enthusiasm.

After dropping to as low as 15,135 early last week, the Bombay Stock Exchange (BSE) benchmark Sensex rebounded sharply, as traders were forced to cover their bearish bets following strong global markets.

The 30-stock index closed the week 1.6 per cent higher at 15,738. The 50-stock National Stock Exchange (NSE) index Nifty clocked 1.3 per cent gains for the week to finish at 4,714.

However, further gains will be difficult as slowing growth and lack of reforms remain drag on markets.

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"With a near rollback of foreign direct investment (FDI) in retail, the government inaction is once again at the forefront. The possibilities of agitation by Anna Hazare on the Lok Pal Bill remains an outstanding issue," Mahesh Nandurkar and Bhavesh Shah, strategists at CLSA Asia-Pacific Markets, said in a client note.

The Congress-led government last week dropped plans to allow FDI is pension funds due to opposition from its key ally Trinamool Congress. Early this month, it was forced to suspend a decision to allow foreign supermarket chains into multi-brand retail amid stiff opposition from its allies and Opposition parties.

"The reforms momentum is completely lost. The prospects for markets don't look very endearing," said UR Bhat, managing director at Dalton Capital Advisors (India).

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Despite better-than-expected economic data in the US, warnings from major credit ratings agencies on a potential downgrade of several European nations have kept investors on the edge worldwide.

Technically too, market remains in a downtrend, analysts say. "While the bounceback seen last week could continue and the Sensex/Nifty could move further up towards the 16,962/5,087 levels, it must be remembered that these main indices continue to remain in an intermediate and long-term downtrend," said Subash Gangadharan, research analyst at HDFC Securities, in a note to clients.

Gangadharan sees a good possibility of the Sensex/Nifty falling to the 14,592/4,438 levels in the intermediate term. These correspond with the 50 per cent retracement level of the upmove that began in March 2009 and topped out in November 2010.

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Participation from overseas investors is likely to be subdued next week due to Christmas holiday and the approaching new year. Trading is likely to be volatile ahead of expiry of derivatives contracts on Thursday.

Market participants will also focus on important economic data, including infrastructure industry growth, current account gap and fiscal deficit, due next week. Political developments on the Lok Pal Bill will also weigh on market sentiment.

In the US, key data to watch out for next week will be the S&P 500 Case-Shiller House Price Index and consumer confidence data on Tuesday and the Chicago Purchasing Managers Index and pending home sales data on Thursday.