Although the Sensex Index declined last month, analysts at major foreign brokerages remain bullish on the Indian market, and expect the Sensex to hit 33,000 in the next 6 to 12 months.
The brokerage firms are of the view that structural reforms being pursued by the government are laying a strong foundation for sustained growth, although expectations have been dampened by a fall in earnings growth.
While Bank of America Merrill Lynch (BOAML) forecasts slower earnings growth, it has maintained a year-end target of 33,000 for the Sensex, based on 17x 1-year forward PE, which is marginally below the 1 standard deviation of the long-term average.
Foreign brokerages such as Citigroup and Credit Suisse also anticipate lower earnings growth. However, Citigroup has also maintained its Sensex target of 33,000 for December and contends that India now offers distinctly more opportunities than risks after the recent market correction.
"Future rerating of the markets would depend on the pace of reforms. We continue to believe that the government would likely deliver on both administrative as well as legislative reforms in the coming quarters," says BOAML.
According to Macquarie, India's "bull-run still remains intact and investors should not be worried because sharp corrections are an integral part of bull cycles."
"Investors do acknowledge that India is a better emerging market story over the medium term. With valuations now looking attractive, buying interest should be around the corner," adds Macquarie.