The BSE Sensex index was projected to increase another 6.7 per cent to 43,645 points from Monday's closing of 40,889 points by the end of next year. Over the past two months, it has achieved over 13 per cent and set record highs continuously after several measures were declared by the Indian government, including a tax reduction.
The predicted stock increase in the November 11-26 survey of 50 analysts would be half the rally so far this year and close to the average rate of fixed reserves in Indian banks–a relatively safe investment.
"The slew of interventions announced in recent months by the government and lowering rates by the Indian Reserve Bank should only result in a very steady recovery in demand over the next 12 months," said Sher Mehta, Virtuoso Economics director.
"As an outcome, the pace of economic recovery and income growth is likely to be reduced over the next two years, which in turn ought to cap stock market gains over and beyond the next 12-month period."
When questioned what would most eventually drive Indian stocks in the next 12 months, a significant minority of respondents-17 out of 48-said it was going to be a demand recovery and 15 analysts said global finance inflows.
After being net sellers in July and August, foreign portfolio investors (FPIs) became net buyers of Indian shares. According to data from National Securities Depository Ltd (NSDL), capital inflows in residential equities reached a high of seven months in November.
"Buying incentives excited FPIs (are set) to venture into the Indian market. FPIs are seeking good government, and we're at the lowest of it all–whether it's Inflation, poverty, or demand.
Still, less than a quarter of the poll's strategists said fiscal stimulus would most probably be the biggest benefit factor in the coming year.
"The government repeatedly announces stimulus, but the stimulus won't have an instant impact on the economy, consumption, or investment," Mittal said.
A separate Reuters survey forecast that the RBI will reduce its key interest rate at its conference next week for the sixth consecutive time and ease it up again next year, which could give local equity a further lift.
However the average price-to-earnings rate is now at a high level that has not been seen since the turn of the millennium at least, and the recent surge in stock prices has raised concerns about their value.
"I see a small decline in stocks that have already risen too much due to valuation considerations. In stocks that have brought the market to an all-time high, we can see some reversal due to valuation factors," said Rudramurthy B.V., Vachan's Managing Director and Research Head.
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