"We revise our Nifty target for end-2015 to 8,600... We are positive on Indian equities from a 1 year perspective, given our view on inflation/interest rates." UBS India Head of Research Gautam Chhaochharia said in a research note.
The wide-based National Stock Exchange sensitive index is currently hovering around 7,900 levels.
"Nifty earnings growth for fiscal year 2014-15 at 2 per cent was lower than expectations," UBS said, adding that "incorporating this, and given our top-down forecast of 10 per cent/18 per cent growth in FY16/17, gives us a lower Nifty value for end-2015".
"We believe the government decision on MSPs (usually announced in June) is a critical event ahead, and any change in political economy reflected in this could be a near-term risk to our thesis of disinflation and consequently lower interest rates," Chhaochharia added.
Also Read
UBS expects another 75 basis points repo rate cuts in FY16.
"While markets have corrected, reflecting some reset of growth trajectory expectations, we believe market expectations in terms of pace of growth recovery need a further reset downwards, leading to continued near-term consolidation," the report said.
"We reiterate our long-held view of a gradual recovery, with a real GDP growth forecast of 7.5 per cent in this fiscal year (from 7.3 per cent in fiscal year 2014-15) and would accelerate only in financial year 2016-17 (to 8.3 per cent)," it said.
Meanwhile, other foreign brokerages, including CLSA, Citibank and HSBC, have also cut down their year-end targets for the markets.
In its policy review meet on June 2, the Reserve Bank lowered projections of the economic growth as measured by GVA (gross value added) to 7.6 per cent from 7.8 per cent estimated in April due to global factors and likely impact of below normal monsoon.