The benchmark sensitive index Sensex is likely to scale an all-time high of 21,700 by the end of this year, around 10 per cent higher than the current levels, a research report by Nomura says.
According to Nomura, the market performance is likely to be dictated by domestic fundamentals, potential rate cuts, and easier domestic liquidity.
"Our one-year forward Sensex target of 21,700 offers around 10 per cent upside from current levels," Nomura said in the research note.
After reaching 20-month high on the first day of the new year, the Sensex on Monday shot up by 243 points to close at two-year high of 19,906.41, fuelling expectations that stocks may breach life-time high soon.
The Sensex had scaled all-time high of 21,206.77 on January 10, 2008.
"Following the contraction in global risk premiums and commensurate rally in risk assets last year, we expect market focus to turn to domestic fundamentals this year," Prabhat Awasthi Research Analyst with Nomura said.
Some factors which can have negative impact for the market include weak government finances, which is at risk due to "pre-election populism", a poor external account and an under-pressure rupee, the report said.
Meanwhile, the key positives are potential rate cuts, and easier domestic liquidity, declining Inflation momentum and on top of it the recent reform push by the government is likely to continue.
Inflation based on wholesale prices today declined to a three-year low of 7.18 per cent in December.
Wholesale price based inflation falling for the third consecutive month is expected to prompt the Reserve Bank to cut interest rates in its forthcoming quarterly review of monetary policy on January 29 to boost sagging growth.
"Market sentiment could well be boosted in spurts by further reform announcements, and longer-term growth-inducing effects of reforms could well provide downside support to near-term consensus earnings estimates, in a bid to justify current multiples," Nomura said.
However, earnings growth will likely be the final arbiter of market performance, the report added.