Sensex gains 1,200 points in two days. Picture: A man looks at a screen across a road displaying the Sensex on the facade of the Bombay Stock Exchange (BSE) building.Reuters

Domestic stock markets remain on track to give decent returns over the next years despite the heavy volatility witnessed in the past few trading sessions, said a brokerage firm.

"The long-term story for Indian equities remains intact, notwithstanding near-term earnings disappointments. Structural positives of lower inflation, demographics-driven developmental politics and rising domestic equity inflows suggest a bright outlook over the longer term," CLSA said in a note to Business Standard.

"We expect 16-18 percent corporate earnings growth over FY18-19, with the market delivering a cumulative 30 percent plus return by September 2017," said CLSA analysts team, head by India strategist Mahesh Nandurkar.

The brokerage forecasts the benchmark Sensex to reach 33,954 in two years.

The Sensex closed at 25,610 points on Friday, posting a weekly gain of 408 points in the wake of PM Narendra Modi's meeting with the India Inc amid global turmoil. A few Cabinet decisions like permission to share/trade telecom spectrum also underpinned the market sentiment.

CLSA said that the "worst for equity markets might be over as India Inc's profitability is close to an all-time low". The firm said robust growth in corporate earnings to be felt from 2016-17.

"India's corporate earnings growth recovery has not matched market expectations. As a result, consensus has downgraded earnings estimates – a move that is likely to continue over the next few quarters," the brokerage said.

The firm said that the government initiatives like 'Make in India' are "showing early signs of success."

Recently, The Economic Times, quoting from a CMIE-CII report, had said that about 38 percent of the 970-odd investment projects – valued at over Rs 10 lakh crore – announced after the Modi government came to power in May 2014, are already being implemented.

Further, the first quarter of the current fiscal saw investment plans worth Rs 2 lakh crore being implemented, according to the report.

"Our analysis clearly indicates that there has been a new momentum in both investment and economic activity in the last 15 months. We are confident that this will steadily increase as the investment climate is picking up," CII director general Chandrajit Banerjee said.

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