Deutsche Bank has cut the BSE Sensex's target to 21,000 from 22,500, citing faster-than-anticipated tapering down of US monetary stimulus, India's high short-term external financing needs and fears over a China slowdown.
The rupee will be a key determinant for stock markets, Deutsche adds. The local currency hit a record low at 61.21 on Monday.
"Currency stability has emerged as the overriding catalyst for the Indian equity market and until the currency stabilises, we expect the Indian equity market to stay highly volatile," Deutsche adds in its report on Monday.
Deutsche shifts its bias towards exporters and defensives in its model portfolio, raising healthcare to "neutral" from "underweight" and consumer discretionary to "overweight" from "neutral", mainly due to a higher weighting in Maruti Suzuki India Ltd <MRTI.NS> and Bajaj Auto Ltd.
The brokerage also cuts industrial and metal shares to "underweight" from "overweight", while reiterating Maruti, ITC, Reliance Industries Ltd <RELI.NS>, HDFC Bank Ltd, Tata Consultancy Services Ltd as its top picks.
(Reporting by Abhishek Vishnoi)