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BENGALURU  - India's main stock index will exceed the record high it hit before the latest coronavirus wave took hold by year-end, according to a Reuters poll of analysts, most whom predicted modest growth and limited downside risks.

After India's worst economic performance in four decades in 2020, a resurgence of COVID-19 cases and a floundering vaccine drive has once again hurt the world's second most populous country's economy, and briefly, its burgeoning equity market.

After its record high of 52,516.76 in February, the benchmark S&P BSE Sensex rose modestly in March and declined about 1.5% in April. But daily case loads of COVID-19 have started declining and the index is now up around 6% for the year, with over half of those gains achieved in recent weeks.

The May 11-26 Reuters poll of more than 30 equity analysts saw the Sensex index adding another 5% and hitting a record 53,200 by end-2021, albeit not much higher than February's peak and well below what was expected three months ago.

From Tuesday's close of 50,637.53 the Indian bourse was forecast to rise nearly 8% to 54,500 by mid-2022. It was then forecast to close out 2022 at 58,500.

"The equity market always discounts what today's fundamentals are, and instead looks at what it might be three to six months down the line, by when corporate earnings, economic activity and growth should pick up," said CA Rudramurthy, managing director at Vachana Investments.

"But trading will be more selective this year than in 2020, when it was more speculative and you could buy any stock and prices just kept rising - that bit is done."

When asked about the risks to the Indian stock market outlook from the coronavirus crisis still gripping the country, 66% of analysts, or 21 of 32, said it was low. The remaining 11 said the risk was high.

"All the bad news from the COVID-19 second wave is done and dusted and is already discounted in stock prices. Even if the expected third wave hits, it wouldn't be a new situation. The uncertainty - which markets do not like - from the previous waves will not be there anymore," added Vachana's Rudramurthy.

Graphic: Reuters poll graphic on India stock market outlook, https://fingfx.thomsonreuters.com/gfx/polling/gjnvwnmjwpw/Reuters%20poll%20India%20stocks.PNG

Despite the modestly upbeat outlook against the backdrop of declining infections, a lot depends on India's success in ramping up vaccinations, the analysts said.

The world's largest vaccine-producing nation has only fully vaccinated less than 4% of its 1.35 billion population, leaving the economy at risk of more lockdowns and sub-par activity.

"For stocks to convincingly rise, there has to be a solid visibility on the growth front. If the vaccination drive picks up pace, I think that can provide a solid boost to equity markets," said Shashank Mendiratta, economist at IBM in New Delhi.

In response to a separate question on this year's outlook for Indian equities, over three-quarters of analysts, or 26 of 33, picked "balanced with limited downside".

While six analysts chose "strong and prone to multiple upgrades", just one picked "weak and prone to multiple downgrades".

"The high valuations of Indian equities suggest markets are pricing in a very strong growth momentum. But growth prospects are softening somewhat...and in that context we do not expect too much of an upside from here," said Rajat Agarwal, Asia equity strategist at Societe Generale.