Indian shares are forecast to scale new highs next year after elections, attracting offshore funds despite an expected rough period for emerging markets when the US Federal Reserve shifts monetary policy, a Reuters poll showed.
The poll predicts a better performance than this year's 9 per cent increase but far more modest than the 25 per cent surge in 2012 when foreign investors bought a massive $24.4 billion worth of Indian stocks.
The consensus of 21 strategists and brokerages polled Dec 4-11 put the index at 22,625 by the middle of next year and an all-time high of 24,000 by year-end, a gain of just over 13 per cent from Wednesday's close of 21,171.41.
Uncertainty about the outcome of the elections, due by May, has prompted many investors and businesses to delay decisions as there are no clear favorites among leading parties to win a majority when India goes to elections.
Vivek Mahajan, head of research at Aditya Birla Money, says Indian shares will rise after the vote "on expectation of improvement in economic activity, better policy decision-making and an improvement in the investment climate."
Prime Minister Manmohan Singh's government has been weakened by years of fractious coalition rule and has struggled to push through reforms in the labour market, taxation system and financial markets owing to lack of political consensus.
The main opposition party is widely perceived as more business-friendly by investors and its victory in recent state elections pushed the BSE Sensex to a record high of 21,483.74 on Monday.
This makes for more moving parts than usual in putting together a forecast.
"The market call in 2014 is more challenging for us than we can remember in a while. It requires us to anticipate what the Fed will do, second-guess election results and then forecast India's policy response," wrote analysts at Morgan Stanley.
"If all three go the market's way, we may be in a bull market. However, if two out of three go against the market, we could see significant downside to indices."
Morgan has the lowest forecast in the sample, calling the Sensex at 20,840 by the end of next year.
Indeed, a loss of confidence in government policymaking, a yawning current account deficit and a sharp slowdown in growth hampered the market's performance this year.
The ride isn't likely to be smooth in 2014 either.
Starmine data shows seven of the 30 companies that make up the index will likely see earnings drop next fiscal year. Six