Key policy promises of Narendra Modi's BJP-led NDA, if implemented, will push Indian economy towards recovery in the near-term, a JP Morgan AMC report said.
"... if the NDA coalition and Narendra Modi hold onto their key policy objectives as set out in BJP's manifesto, then markets should start to anticipate a cyclical improvement in the economy beginning early in 2015 that in turn will feed through company profits, margins and earnings, holding out the prospect of significant upgrades to 2015 Sensex earnings," the report said.
Historically, India's election and change of government have only had a limited impact on the stock market, it added.
"Beyond a near-term cyclical rebound, we also envisage a brighter medium-term outlook for the domestic economy that could start to become visible by 2016," it added.
The report also noted that GDP growth to 7 per cent by FY16 with retail inflation easing to 6 per cent look achievable.
"A cyclical rebound in GDP growth to 7 per cent by FY16 and CPI inflation easing gradually to 6 per cent, accompanied only by a moderate widening in the current account deficit, look achievable," it said, adding that all the positives have not priced in by domestic stock market.
Talking on the short-term risks to domestic growth, the report said factors like inflation, fiscal discipline could dampen growth prospects in the near-term.
The report also said the new government will push growth in infrastructure sector with reforms to address supply side issues.
"We expect a determined effort to push forward with meaningful supply-side economic reforms. Boosts to infra projects are likely to be announced, including several mega projects such as the 'Diamond Quadrilateral' rail system," it said.