Mumbai: Observing that investor pessimism in the country might be 'overdone', German brokerage Deutsche Bank on Monday predicted that the BSE benchmark Sensex would close the year at 22,500 points.
"We believe investor pessimism on India may be overdone," Deutsche Bank said in a note, giving the target of 22,500 for the Sensex, which closed at 54 points on Monday at 0.40 per cent at 18,661 points, the seventh successive loss.
It cited continued action and commitment from the government "despite fears of policy taking a backseat to politics" and gave examples of decisions like clearance given to five oil and gas exploration proposals entailing an investment of USD 9 billion, rationalising FII investments in debt etc as reform measures.
"With legislative maneuverability, constrained and political rhetoric is expected to rise as we head closer to national elections, government policy action will likely shift towards executive decisions, which don't need parliamentary approvals," the report said.
The government will start spending again with the start of the new fiscal, while there will be a "big bang" of sorts as the government focuses on pending projects and the recent decision to delink permissions for environment and forest would also be helpful.
The note also said that despite recent adverse political developments, it will not derail the economic reforms process. "Given the persisting economic headwinds, policymakers simply have no choice at this juncture, (but to go ahead with reforms) irrespective of political dynamics," the note said.
The note, prepared within days of the ruling UPA's second biggest constituent DMK pulling out its support, also said there was not much of a possibility of mid-term polls.
It said plans on disinvestment, diesel price liberalisation and foreign direct investment in retail will move ahead.
On the macroeconomic front, it said the weak economic fundamentals will not deteriorate further from here on a variety of factors like expectations of a good rabi harvest and other confidence boosting moves like a likely clearance to stuck infrastructure projects, which will boost investments.
According to a government estimate, the GDP growth for the current fiscal is likely to fall to a decade low of 5 per cent. Experts attribute the deceleration to a variety of factors, both domestic and global.
Factors like high interest rates and a perceived "policy paralysis" which led to no bold decisions being taken and a depreciation in the rupee top the list of reasons denting growth.
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