"We expect the Sensex to be at the 23,000 or 23,500 levels and the Nifty to be at 7,100-7,200 level by the end of 2014. The general election is one of the biggest events to look out for and the formation of a stable Government will boost up the markets further," RBS Private Banking's chief investment officer for the country Rajesh Cheruvu said.
He said the current valuations make the country an interesting bet, while the general expansion in the economy will help boost earnings and hence investor interest.
Initially, markets expected the Narendra Modi-led NDA to form a government but recent progress made by the Aam Aadmi Party (AAP) has tempered expectations, CIO for Asia and Middle East Gary Dugan said.
Cheruvu said there would be a shock in the markets if a coalition of regional parties forms the government, but pointed to the United Front rule in the late 1990s to say that even such a coalition takes market friendly initiatives.
Dugan said his company was advising clients against going for the developed world and asking them to go for the emerging markets instead and added that India is the second best bet after China.
In India, the inflation scenario is turning up and factors like the good monsoon will move it down, Cheruvu said, adding that this encourages the bank to estimate rate cuts if up to 0.75 percent by the Reserve Bank between April and December.This will push up the lagging investment climate and cheer the markets, he underscored.
On stocks side, Cheruvu said the year will see a return of investor interest in the cyclical sectors like metals, auto and power utilities to return as against the present defensive play.
The country will also be able to do good movement on the twin deficits---current account and fiscal --- front, which will help avoid a downgrade of the sovereign ratings, he added.