A report titled 'Bright Side of the Gloom', released by Citi Investment & Analysis, a division of Citi Global Market Inc, predicts that the Indian stock market bellwether index -- Sensex -- will reach 21,500 by December 2011, which is an upside of 15 to 16 per cent from the current levels.

Interestingly, this is a notch lower than 22,000 than what the institute had predicted in its earlier report. The Sensex was trading at 18,377, 0.62 per cent lower than its previous close, at the time of writing this report.

Speaking to the media at the 6th Citi India Investor Conference in Mumbai on Wednesday, Aditya Narain, managing director, head - India research, who along with Jitendra Tokas has compiled this report, reiterated his view on the Sensex's year-end target even as he expected inflation to remain at the 8 per cent levels on the back of a hike in fuel prices.

He said he expects the earnings growth to be in the 18 to 19 per cent levels and India's GDP to grow at 8.1 per cent if the forecast of a normal monsoon plays out to be true. "We are seeing relatively decent pace of growth," he said.

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However, he observed that rising inflation, rising interest rates, stalled investment cycles and tardiness at the decision-making level in the government could dent India's growth rate.

"Decision-making at policy level is very, very slow," he said, hinting that this could slow down India's growth. "The flat investment cycle is the result of regulatory problem and not a market problem," Narain said.

When asked to elaborate, he told rediff.com that land acquisition, coal and mining policies are some of the areas where there is slow decision-making at the policy level.

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Narain said that the current scenario where India is growing at a decent pace despite rise in interest rates might not persist for long.

"Either growth falls or market rates rise," he said. He said it was unlikely that both will happen simultaneously.

Responding to a question on the real estate sector in India, Narain added, "there is significant disconnect between real estate market and the stock market."