Indian stock markets hope for interest rate cuts, more reforms in 2013

The gain of over 25 per cent in Sensex in 2012 so far, has infused life back into the markets. However, going ahead, the rally will be driven by corporate earnings, fiscal deficit and inflation-level, Jain said.

According to Vinay Khattar, Head Research (Individual Clients), Edelweiss Financial Services: "The first and foremost wish is from the RBI. Markets are expecting the central bank to cut repo rate in the fourth quarter of FY13.

"The second wish is that government must implement the proposed reforms, such as increasing FDI in insurance and allowing foreign play in pension industry, besides clearing the decks for introduction of GST."

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If inflation continues its downward trend, RBI may opt for rate cut in January, experts say.

On rate cut expectations, Khattar said, although, RBI has refrained from cutting rates for quite a while, it is likely to resume rate cuts in the last quarter of FY13.

The timing and size of rate cuts is still debatable given RBI's preference for price control. On the whole, RBI is expected to lower repo rate by 50 basis points in the remainder of FY13, Khattar said.

Marketmen have expressed optimism on the outlook for the Indian market.

"We see 13-15 per cent upside in Indian equities. This translates into Sensex target of 22,000-22,500 over the next 12 months," Khattar said.

The government's reform agenda has lifted investor sentiment and business confidence, which in turn have driven overseas investment

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