The Indian equity market is trading at a premium to its historical average and its valuations are expected to stay high over the next three years, says an Edelweiss Securities report.
The report said while supply side has undergone a structural change, reform momentum is well above its historic past and more aggressive than emerging as well as global peers.
Moreover, domestic flows into the equity market will have a fairly large and sustained influence on how the Indian market is valued.
"We argue the love for India will only grow and its valuations will stay high over the next 3 years, as big fundamental transitions play through and pent-up cyclical drivers kick in," said Aditya Narain, Head of Research - Institutional Equities at Edelweiss Securities in the report.
Edelweiss Securities sees the Nifty index at 11,100 on June 2018.
According to the report, India could effectively become a domestic economy than it has been in the past because of its relatively high domestic growth.
The report noted that though FDI is still flowing in, there is less trade, capital and earnings that are offshore dependent.
"But it does suggest that India could well, by dint of its relatively high domestic growth, effectively become a domestic economy than it has been in the past," it noted.
It further said the role of FDI in India's growth story is likely to be more muted this time around and these, in turn, should keep the market and economy more insulated from global shocks.
"Given the significant lack of market awareness, limited access and products (regulatory as also business constraints), Indian equity capital should stay predominantly domestic, and progressively shift ownership from FIIs to locals," it said.