Financial major Goldman Sachs today raised the Indian stocks to "overweight" from "market-weight" and said the NSE Nifty will scale the 6,600 level by December 2013, on the back of growth recovery and moderation in inflation going forward.
Being market weight is similar to having a 'hold' rating, whereas being overweight is generally considered equivalent to 'buy' title.
The investment bank has pegged December 2013 Nifty target at 6,600 points, or an earnings growth of 17 times from the current levels on both a three-month and 12-month basis.
The company has not put a target for the benchmark Sensex. Normally the Sensex is three-times the Nifty.
"For India, we believe the upside drivers include a recovery in growth, a decline in inflation, and the potential for continued policy reforms. While we acknowledge that the recovery in growth and deceleration of inflation may not be imminent, India is less affected by the near-term concerns of the US 'fiscal cliff' relative to other markets in Asia,¿ Goldman Sachs said in a report.
It further said "the recent reform initiatives after the changes in government leadership have created a sense of optimism among investors for the first time in over a year, and the risk of policy missteps in 2013 has been lowered."
The stock markets lapped up the report and the Sensex rallied 1.75 percent, or 328.83 points at 19,170.91, its highest close since April 28, 2011.
The 50-share Nifty also gained 1.7 percent, or 97.55 points, to 5,825.00, on the last day of the November F&O series with high volumes, marking its highest close since April 27, 2011.
The rally was also supported by the easing of the political logjam in Parliament over the retail FDI issue.
With structural issues being addressed and a cyclical recovery on the horizon, the equity market may bounce back strongly next year, says the report, adding "at 13.4 times forward earnings, MSCI India's valuation is "middle of the pack" in Asia.
This is also well below the five-year average of 14.9 times, affording an attractive entry point into one of the stronger structural growth stories in the region, it added.
The Goldman report further said, "we expect the central driving theme of 2013 will be the recovery in growth across. both at the macro (GDP) and micro (EPS) levels.
"Despite the inevitable twists and turns of the market path next year, we believe the strongest full-year returns will be in the markets, sectors, and companies that show