The country will continue to attract fund allocations from foreign investors next year as well and the 30-share Bombay Stock Exchange (BSE) Sensex would touch the 23,000 level by 2011-end, a study by the asset management arm of ING said.
"Easy global liquidity and higher growth rates will continue to drive allocations to emerging markets including India," ING Investment Management said in a release issued here, adding the economy's 8-8.5 per cent growth will also bring more investment into the country.
Forecasting the Sensex, which shed 2 per cent to close at 19,865 today, to touch the 23,000 level, the study feels that the key drivers for equity markets in 2011 will be positive earnings growth, attractive valuations, abundant liquidity and strong corporate wealth.
Driven by foreign funds money, the market has had a strong rally for a year from the 8,000-level and concerns have been raised about the high valuations of Indian scrips.
It goes on to add that the factors which may bring volatility in the markets would be fiscal health of banks and Governments in Europe, growth in developed economies and actions to temper inflation.
"Indian investors need to be watchful on the global developments. They must understand the macro economic factors such as inflationary pressure in the domestic economy that may hurt the market sentiment in future," the fund's Chief Investment Officer K Ramanathan said.
The company expects the Reserve Bank to hike its key rates by up to 0.75 per cent during the course of the year and the 10-year bond yields in the region of 7.75-8.5 per cent.