"Optimism over (possible) political change, led by BJP's prime ministerial candidate (Narendra) Modi is dominating economic concerns," Goldman said in a note
"We revise our end-2014 target for NSE Nifty to 6,900 points, which implies a 9 per cent upside from the current levels and a 14.5 times forward price to earning ratio,"
Goldman is the first brokerage to put such a high target for Nifty. Deutsche Bank had upped its BSE Sensex target for December 2013 to 22,000.
There are also early signs of cyclical pick-up and structural improvement, the report said.
The external capital account pressures have moderated at least for now, it added.
However, it added that the market continues to face challenges and listed slow growth, Fed taper, a change in the currently positive political mood, and a faltering earnings recovery as the main risks.
Goldman said its earlier cautious stance was founded mainly on downside risks to economic growth and earnings growth, as well as vulnerability to changing global liquidity conditions given external and internal imbalances."