Reforms to drive Sensex to 27,000 at year end: BofA-ML

Reforms by the Modi government are expected to drive the benchmark stock market index to a year-end target of 27,000 points, a US brokerage said.

"We continue to expect reforms to drive markets to our year-end target of 27,000 points though we could see near-term consolidation as it absorbs worries on a poor monsoon and the strife in Iraq," Bank of America Merrill Lynch (BofAML) said in its India strategy report.

BofAML said the market impact of the budget has been reducing since most reforms, such as the recent rail fare and freight increase, don't wait for the budget. Tax rates are relatively stable and hence changes in the budget are small and have only a marginal impact on earnings.

Yet, this time the budget speech may be the first occasion where the government formally lays down its economic vision. While most of these reforms will happen outside the budget, investors will probably get an idea about the reform priorities of the government, it said.

Finance Minister Arun Jaitley is expected to focus on fiscal consolidation when he presents Budget 2014 on July 10.

"FM is likely to retain the gross fiscal deficit target of 4.1 per cent of GDP set in the interim budget presented in February. We may also see a switch towards plan expenditure funded by delayed rollout of the Food Security Act, as well as greater visibility of government divestment of public sector stock. The finance minister will likely retain the net government borrowing programme of about Rs 5,000 billion set in the February Budget," it said.