The Indian stock market barometer Sensex may reach 20,800-level during the next fiscal, mainly on account of a strong liquidity position and positive policy actions by the Government, brokerage firm CLSA has said.

The index is currently trading near 18,400-level, after a surge of nearly 3,000 points or about 20 per cent since the beginning of this year, emerging as the best performer within Asia so far in 2012. Prior to this, the Sensex had plunged by more than 5,000 points or about 25 per cent during 2011.

“India has been the best performing Asian market year-to-date and we believe the strong performance would continue as the liquidity-driven rally is now getting the policy support and corporate earnings stability,” CLSA said in a report.

CLSA further said that it was raising its target for the Sensex to 20,800-level for the next fiscal FY2012-13, beginning April 2012.

The report said that “any initiative to improve coal production and power generation, we believe, will further increase our enthusiasm.”

Strong surge in Foreign Institutional Investors (FIIs) inflows in 2012 so far has helped boost the equity markets as well as helped the Indian rupee to strengthen.

Since the beginning of 2012, the FIIs have infused nearly Rs 25,000 crore ($5 billion) into Indian stocks after taking into account Rs 10,358 crore of net inflows during January 2012.

It is not only India which has witnessed an upsurge in investment. Equity funds focused on all emerging markets put together have seen an inflow of over $19 billion in 2012.

Earlier in December 2011, CLSA had said that there was even a possibility of Sensex dipping to 11,000-12,000 level during 2012.

However, JP Morgan Asset Management had said that Sensex could rise to the 20,000-mark by June.

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