The British lender also pegged Nifty at 6,700 by December, about 10 per cent from today's close, while it sees bond yields falling 80 basis points (0.8%) to 7.3 per cent by the end of the year.
However, its Nifty target is a tad below others' estimates with most of banks and brokerages pegging a 17 per cent gain on the Nifty this year.
"We expect that equity markets to perform well in this calendar year with the Nifty touching 6,700 level by the end of the year. As far as bonds are concerned, the benchmark 10-year bond yield should fall by 80 basis points to 7.3 per cent by the year-end," RBS Private Banking India Chief Investment Officer Rajesh Cheruvu said.
However, the report pointed out that a lot depends on the forthcoming budget in the backdrop of the forthcoming general elections slated for early 2014.
He also said the demand for gold may come down as the global economic environment improves this year. Referring to the real economy, Cheruvu said the revival of the domestic economy is likely in the current year.
"We hope the economy will grow 6.3 per cent in 2013 against an expected 5.3 per cent in 2012 due to the recent reform measures, and the possible monetary easing by the RBI," he said.
On the inflation front, the report said the price index is likely to be average at 5.4 per cent in FY14 against an expected level of 7.6 per cent in FY13.
The partial diesel price deregulation would help in containing fiscal deficit, which will help taming inflation. Talking about investment opportunities, the report said equities and long-term bonds give better opportunities this year. It said stocks in the consumer staples, healthcare and IT are their top picks but sounded cautious on telecom, utilities and industrials space with a negative outlook.
On the rupee, the report said it is likely to appreciate against other currencies from the second half, but pegged it at 53-55 to the dollar in the near-term.
Cheruvu also said the country is not likely to be downgraded by rating agencies from the present 'BBB-' as it has taken a slew of reform measures to contain fiscal deficit.
On the global front, the report said emerging and developing economies would do well this year with things improving in the US.
"We hope that emerging countries will do good in the current year," RBS Wealth Division Chief Investment Officer for Asia & Middle East Gary Dugan said, adding buying equities and selling bonds will be a good investment strategy this year.
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