Deutsche Bank today said the benchmark sensitive index Sensex could touch the 20,000 mark by December end, driven by the recent reforms push and positive announcements from Europe and US.

In a research note, Deutsche Bank said the back-to-back announcements on fuel price rationalisation and opening up of FDI (in multi-brand retail, aviation, power exchanges and broadcasting services), is a huge signal and symbolic of the government’s reform commitment.

“We are raising our December 2012 Sensex target to 20,000, implying a return of 8 per cent from current levels,” the report said.

After the host of policy reforms announcement by the government last week, the BSE benchmark Sensex today rose over 80 points to 18,544.63 in pre-close trade on sustained buying by funds and retail investors.

In big ticket reform measures, the Cabinet Committee on Political Affairs had last Thursday decided to hike diesel prices and put a cap on the supply of subsidised LPG cylinders. On Friday, the Cabinet Committee on Economic Affairs had cleared FDI in multi-brand retailing and aviation as well as disinvestment in four PSUs.

Meanwhile, the timing of these announcements was in line with the positive announcements from Europe and US central bankers, and will ensure that India does not miss out on the ongoing global risk rally, the report said.

The most immediate impact of the announcements will be on the external accounts and on rupee. Besides, it will also rebuild the faith of corporate India, where record despondency had throttled business confidence, the report added.

The report however said it will not be a one-way street for Indian equity markets.

While the measures are certainly positive and indeed encouraging, the sustainability of the rally will depend on the implementation of these reforms amid a belligerent Opposition.

Some of the other factors that may also influence the sustenance of the rally in the equity market are the ultimate outcome of the coal allocation controversy and deteriorating asset quality of Indian banks, among others, the report said.

Investors will also be looking for further steps on faster administrative and environmental approvals for large investment projects in both the public and private sectors.

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