The Bombay Stock Exchange benchmark Sensex is likely to touch the 18,000-level by the end of this year, driven by global cues and better earnings by companies, a report says.
"On the back of a sharply improving...earnings that, in turn, should benefit from rising availability and falling cost of capital, we expect the BSE Sensex to rise to 18,000 in the next 200 days," Reliance Equities research head Subhajit Gupta said in a report.
Despite the domestic factors like elections triggering the rally in the market, it is likely to be dominated by global dynamics, the report stated.
"The recent rally in the country was driven by domestic factors, that is, a surprise election result and the formation of a stable government focused on growth. . .However, we believe global markets will remain the overwhelming dominant driver of the Indian market," Gupta said.
Further, the country is at a significantly superior growth and risk category relative to its past cycles or competing global investment destinations, it added.
The benchmark index Sensex gained over 46 per cent in the past two and a half months to climb to around 14,500 levels compared to 9,900 levels in April.
In a comparison with its peer markets, the country's valuation appears more attractive relative to most European markets, Japan and emerging markets, including China, Malaysia, South Africa and Taiwan, the report revealed.
"Given what we have said about liquidity and India's comparative advantages and the fact that India hasn't had a strong government at the helm for a long time, we do not expect Indian markets to underperform global or emerging markets in the near-term," it added.
Interestingly, emerging markets and in particular Asia, would benefit from a shift in global asset allocations.
The Reliance Equities report pointed out that in the face of the severity of macroeconomic challenges in western markets and the rising risks of a dollar decline, Asian allocations may increase as a defensive move.
Moreover, abundant global and local liquidity is now being reflected in greater credit availability and falling credit costs for corporates.
This bodes well for investment demand, however at the same time, liquidity is not yet reflected in higher prices for non-commodity items, creating a benign inflationary environment in the near term.
"As food prices stabilise in India and non-food prices remain benign, consumer purchasing power will improve and will be reflected in sales volumes," it added.
