Morgan Stanley sets a new target for the BSE Sensex at 23,069 points by the end of December 2013, implying an index trading at 14.9 times estimated 2014 earnings.
The target would surpass the index's record high of 21,206.77 points hit on January 10, 2008.
"Conditions for a new bull market are getting slowly satisfied. The yield curve has stopped flattening, liquidity is improving, valuations appear supportive and profit margin expansion is a growing possibility in the coming months," the investment bank says in a note dated on Monday.
Morgan Stanley expects domestic earnings growth of 10 percent in fiscal 2013 and of 19 percent in fiscal 2014.
Morgan Stanley says cyclicals are "ultra cheap," and prefers "quality" cyclicals over defensives.
As a result, the investment bank goes "underweight" consumer staples in its model portfolio, while raising energy and materials to "overweight" and taking industrials to "neutral."
Morgan Staley also cuts technology exposure in its portfolio by 100 bps.
