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HSBC Global Research has retained its Sensex target of 20,700 points at the end of 2013.
"After the Q4 FY13 (ending March) earnings season, the Street scaled back forecasts on GDP, the rupee value against the USD and market EPS. We believe this dose of realism is healthy for the market," HSBC Global Research said in its 'India Equity Insights Quarterly' report.
"With growth concerns now more severe across North Asia, we believe India looks relatively better placed in a regional context. Our year-end 2013 index target is 20,700 - 3% above the current level," it said.
The 30-share BSE benchmark index ended at 20,149.85 today.
"We believe the recent liquidity tightening by the Reserve Bank of India is likely to be temporary, as it could derail the nascent recovery. Raising the Marginal Standing Facility (MSF) rate on July 15 to 300bps above the repo rate should see a hardening of the yield curve," HSBC Securities and Capital Markets Equity Strategist Jitendra Sriram said.
During the past quarter we have seen consensus forecasts being taken down after FY13 results. Two factors, lower economic growth and higher effective taxes, have contributed to the downgrades. Currently, the Street consensus is expecting 11% corporate earnings growth for FY13-14, which looks reasonable in our view, Sriram said.
HSBC Research said corporate earnings have bottomed out and a gradual recovery is in the offing.
Among the sectors, the consensus expectations of 16% earnings growth for consumer discretionary, 17% for material, 15% for industrials and high double -digit growth for telecom look optimistic, the report said.
"We believe the rupee depreciation has meant that exporters (IT and healthcare) should see positive earnings revisions," it said.
HSBC economists believe India's GDP growth has bottomed out and it should see a marginal rise in the coming quarters. "We expect quarterly GDP growth to increase from 4.8% in Q1 CY13 to 6.6% in Q4 CY14."
The economic growth should improve from hereon on the back of improved agriculture output and pre-election spending, they said.
