Bank of America Merrill Lynch (BofA-ML) expects Sensex to touch 21,750 by December 2013, implying a 13 per cent return over the next 12 months. BofA-ML's forecast is ahead of Citi's 2013 Sensex target at 20,800 and BNP Paribas year-end target of 21,000.
BofA-ML's 2013 growth expectation is in contrast to the 25 per cent return the Sensex has witnessed year-to-date.
"India was one of the worst-performing markets globally last year and expectations were low. But YTD, it has been one of the best-performing markets globally despite downgrades in the economy and earnings. Unfortunately, India will enter 2013 as one of the best-performing markets and expectations now are high," BofA-ML said in its report.
BofA-ML says markets will be helped by the 3 Rs - recovery in earnings and economy, rate cuts and reforms. However, the 3Ps - politics, performance and positioning- will act as headwinds in the next calendar year, the investment bank says.