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Bank of America Merrill Lynch (BofA ML) expects the BSE exchange's benchmark Sensex to climb to 54,000 by end-2018.
The market could be range-bound to negative over the next few months and investors should await dips, BofA ML said in a note on its four-day Annual India Conference, which concluded on March 12.
The brokerage said investors were overweight on India despite economic recovery not having taken off as expected. “Investors, post their company meetings, seem to agree with our view that valuations were probably pricing in too much of good news. While we think the market will remain expensive through the year, we think it consolidates for the next three to six months,” said the report. Global emerging market funds are overweight on India by nearly 420 basis points, it added.
On the other hand, the report said, the increased investment expenditure in sectors like roads, railways and defence would be a big positive for the markets. This and rate cuts by the Reserve Bank of India would drive the recovery process.
Expectation of rate cuts is also reflected in its own investment strategy. BofA ML continues to be overweight on interest rate-sensitive sectors such as automobiles, banks, cement and oil.
