After showing an anemic growth of 0.6 per cent in FY12 (Rs 339.6) over FY11 (Rs 337.8), we expect free-float Nifty EPS to rise 13.4 per cent to Rs 385.3 in FY13 and 14 per cent to Rs 439.4 in FY14.

At 5,363 level, as on September 10, Nifty is trading at 13.9 times FY13E earnings and 12.2 times FY14E earnings. The last 10-year average for Nifty’s one-year forward multiple is 12.8 times. Thus, Nifty is now trading at 13.0 times i.e. at a marginal premium of 1.6 per cent to its 10-year average of one-year forward multiple (based on September 2013 Nifty estimated EPS of Rs 412.4) limiting further scope for upside on an expansion of PE basis. A sustainable upward move from the current levels, in our view, would depend entirely on strong measures to kick-start reforms.

MSCI India is currently trading at a premium of 37 per cent to MSCI Asia (ex-Japan). Last 10-year’s-average premium at which India has traded is 33 per cent.

Despite the macro-economic concerns, rapidly slowing growth and there is no movement on reforms from the Central government. FIIs have poured in Rs 533.20 billion in India since January 1, 2012 as we expect India’s GDP to grow between 5.25 per cent to 5.75 per cent GDP growth in FY13.

This contrasts with a contacting Europe, slowing US which is also facing a massive and disruptive fiscal cliff, global slowdown in demand for commodities affecting commodity-export-powerhouses like Australia, Brazil, Russia, South Africa, Nigeria & Gulf countries; and China which would be hard hit by slowdown in its export markets, massive mal-investment risks in infrastructure haunting its banking system, slump in housing market and once-in-a-decade change in its highest decision making body of communist politburo, president and prime minister.

In the wake of ECB’s bond-buying programme, hopes are building up that the Fed will do an encore and unveil QE3, adding to the global glut in liquidity. This is benefiting risk-on trade and equities have lately surged and bond yields of ‘troubled’ European countries have retreated whilst those of ‘safe haven’ countries like Germany and US have risen

As Indian valuations are not-too-expensive from historical perspective, we believe, the markets would find support at the 5,000 level despite plethora of problems dogging the economy with continuing gush of FII flows providing a cushion. On the upside markets could move to 5,500-5,600 levels.

Any decisive breach above these levels would depend on the government getting its act together and acting in a decisive and focused manner to push reforms and jolting investors out of a feeling of ennui towards the Indian economy.