JP Morgan - 22.5K target for 2008

Stock markets in India are expected to rise further next year but at a slower pace as high valuations and a fall in corporate profit growth limit gains, analysts at JPMorgan said. The Mumbai market's benchmark index is expected to rise to 22,500 points by the end of next year, up 16 per cent from Tuesday's close of 19,400.67.

The index has gained nearly 15 per cent in October, its biggest monthly gain in almost four years, taking its rise this year to 40 per cent. It had gained 47 per cent last year and 42 per cent in 2005.

Bharat Iyer, head of research at JPMorgan in India, said corporate profits, which had grown 25-30 a year for the past three years, would slow from a high base.

"You have challenges in the form of rupee appreciation, volatility in interest rates, etc. So you expect earnings growth to structurally slow down.

"It's still very attractive in absolute terms at 19-20 percent, but the fact of the matter is that you are coming down from 30 percent to 19-20 per cent, which is a step down."

He said infrastructure, engineering and construction and steel sectors were likely to perform well, while drug makers and telecoms were not expected to be as strong as they have been.