The BSE Sensex will show a small rise between now and the end of

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the year but is set to surpass record highs in the first half of 2011 thanks to a booming economy, a Reuters poll showed. According to the median response from 21 market participants, which include investment banks and brokerage firms, the BSE Sensex is likely to rise just 3% by the end of 2010 to 20,080, from Thursday’s close of 19,417.

That would mark a 15% rise this year, much smaller than the 81% rally in 2009. An uneven global recovery, where worries remain about a possible return to recession in rich nations, could limit future gains. “The world economy is slowing and this will put pressure on equity markets. The emerging markets and India will not be immune to this,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.

However, with the economy expected to see robust growth in the next few quarters, respondents in a poll taken over the past week seemed optimistic, predicting the BSE Sensex to rise 11% to 21,500 by mid-2011. That would top the lifetime high of 21,206 seen in January 2008 before the onset of the worst financial crisis since the stock market crash of 1929.

Indeed, the expectations are more bullish than those in the previous quarter’s survey, when the median responses saw the Sensex rising to 19,000 by the end of the year and to 21,000 by end of June ’11.

“The long-term story definitely holds good with improving macroeconomic fundamentals,” said Gajendra Nagpal, chief executive of Unicon Financial, pointing to robust summer monsoon rains and accelerating economic growth. “But, the gush of money which has come into our market is unprecedented. A correction or bouts of profit-booking are quite likely as valuations don’t look cheap from the near-term perspective,” he said.

The BSE index trades at 23.2 times forward earnings, compared with 16.3 times six months ago, data from Thomson Reuters show. Foreign funds have pumped in more than $14 billion in Indian equities so far in 2010, driving the BSE main index more than 10 percent higher this year. India’s Sensex has outperformed benchmarks in fellow BRIC markets Brazil, China and Russia so far this year.

“India is outperforming its emerging market peers for a reason. Latin America is interesting but India is clearly preferred over Brazil, and definitely over China,” said Vikas Pershad, CEO of Chicago-based Veda Investments, citing strong economic and corporate fundamentals.

India is on track to grow at 8.5 percent this year, second-fastest among major economies, behind only China.

The summer monsoon that provides most of the country’s rainfall has been better than normal after last year’s drought conditions and has somewhat eased worries about inflation. However, price increases remain far above the central bank’s comfort level.

Financial stocks are expected to drive the market higher as investors bet on improving loan demand in the expanding economy. The banking sector index has already gained around 35 percent this year.