Morgan Stanley expects the BSE benchmark Sensex to rise 26 per cent by December 2013, citing ample global liquidity as a key reason.
The investment bank sees the Sensex at 23,069 by the end of next calendar year.
The index fell 0.05 per cent, or 9.68 points, to close at 18,329.32 points on Tuesday.
"Global liquidity is at a level that suggests very strong returns from Indian equities," Morgan Stanley said in a client note.
"Action from global central banks has reduced India's tail risks from macro stability tribulations, including a high external deficit, and this is now evidenced by declining correlations in the equity market. The government is also showing resolve to push policy reform, although a lot is still to be done," it said.