India’s stock benchmark NSE Nifty 50 is likely to cross 12,000 in the next few months, according to CLSA’s India strategist.

Mahesh Nandurkar revised the target higher based on rising investor confidence, improving liquidity and earnings optimism. The foreign brokerage had an earlier year-end target of 11,000.

The growth will be mainly driven by the banking and financial industry, Nandurkar said. “We expect the bank and financial segment to report very strong numbers in FY20. In fact, we will see strong numbers starting from the March quarter of 2019 itself.”

The bullish view is based on expectations that there will be stable government back at the helm post elections. While the market has built a 70-80 percent change of a stable government, Nandurkar said, the rally hasn’t factored it completely.

Besides, global cues are also turning favourable for the rally to continue, he added.

So, what are the big concerns?

It’s mostly the high valuations. With a price-to-earnings multiple of around 15 percent, Indian equities are trading at about 20 percent higher than their historical averages. “That clearly is the worry,” Nandurkar said.

“Many good businesses which the investors wants to own are trading at very high levels of PE multiples, especially on the consumer and discretionary side. The multiples are 35 to 40 times upwards of it.”

The other incremental concern could be the consumption slowdown in the auto sector and the consumer staples, he said.

Other Highlights:

• See scope for further RBI 25-50 basis point rate cut.
• Inflation to hover around 4 percent
• Sees improvement in the investment cycle.
• Expects consumer sector to underperform.
• March results play a big role in determining which way growth is looking like; management commentary critical to learn the impact of consumer spending behaviour.
• Says earnings trend would remain similar for other companies, barring banking and financials and some companies with low base effect.

Watch the full interview here: