India Inc has found renewed hope in the capital markets for the next six months but has painted a gloomy picture for the long-run due to the uncertainty arising out of impending general elections.

In its survey on 'State of Capital Markets', covering 200 entities from across the sector, Federation of Indian Chambers of Commerce and Industry said a vast majority of the respondents feel old economy sectors, including bank and steel, are ready to surge, even as a sizeable population said the scrip prices of new age IT companies would fall soon.

As much as 94 per cent of the respondents felt the 30-share Sensitive Index of the Bombay Stock Exchange would be around 3000 points, while 70 per cent expect it to be around 4,000 points, the survey said, adding that about 35 per cent of them were not optimistic about the better performance of Sensex in the long term, predicting that it could be 4000-5000 points.

"A reason for such a view perhaps is the general election that is round the corner, which may create uncertainty in Indian business environment," the survey noted.

Over three-fourths of respondents said fund managers would hike their allocation in the domestic capital markets and the banking sector was expected to attract the maximum investment.

Releasing the survey, FICCI general secretary Amit Mitra said the respondents gave a wake-up call to the Centre for easing investment norms for pension and provident funds to invest in equities, encouraging the small investors in public issues and divestment through public route.

Among the respondents -- broking firms, foreign institutional investors, corporates, banks and mutual funds -- 62 per cent said that multiplicity of regulations was a cause of concern in the markets, which created confusion.

Highlighting that 88 per cent of the respondents felt the need for small investors to rev up the IPO (initial public offering) market, the survey said it was imperative for boosting investors' confidence with another 65 per cent of them suggesting setting up of special courts by the Securities and Exchange Board of India for redressing investors' grievances.

Though 79 per cent of the respondents considered investor protection as a key factor, another 54 per cent of them did not favour the proposal of providing safety net for IPOs.

On the settlements, the survey said 62 per cent of them had felt that the market fully adapted to T+2 cycle. In this context, Mitra said, "we have gone one step ahead of the US markets, where it was T+3 cycle."

The survey highlighted that the margin trading had failed as fear psychosis among the banks was the major reason since 65 per cent of them voted against banks.

Another 62 per cent of the respondents said it was due to absence of proper risk management policies and effective internal controls by public sector banks, 59 per cent cited stringent lending norms of banks and 41 per cent attributed it to lack of adequate infrastructure for fund transfer.

On the mutual funds, 74 per cent foresaw growth potential for the sector in rural markets with a majority of them said post offices, rural branches of PSU banks, cooperative banks and regional rural banks could act as distribution channels.

Portraying that the derivative market was still in infancy, it said 61 per cent felt that it was not adapted to its functioning, even as 91 per cent of them expected the volumes in business to increase in one year's time, for which enhanced education was important.

The FICCI survey found that the main hurdles for derivatives markets in India were high contract size, lack of clarity in accounting and taxation policies and derivatives trade being limited to fairly small number of scrips.

Hoping that investor education would improve, it said there was a need to deepen the derivative segment by rolling out Forward Rate Agreement, Interest Rate Option, American Option, Retail Debt Future and Option, Swaps, Sector-specific Index, Sector-specific Commodity and Real Estate Commodity.

Referring to the debt market, the survey said there was low level of awareness about risk-return profile of government securities vis-a-vis other competitive products, lack of liquidity in the market and lack of ease of trading in retail debt market.