Politics will also be a source of uncertainty for the market before the upcoming general elections scheduled to take place by May 2014, said strategists.
"Currently, the election looks very hard to call, and adds to market uncertainty," Lewis said.
"But investors would probably welcome signs that the Bharatiya Janata Party [the main opposition party] was moving into the lead, as Narendra Modi could be expected to kickstart the reform process. That is a scenario we would need to be aware of, given our current underweight position," he added.
Narendra Modi, who is serving as the chief minister of India's Gujarat state, is the BJP's candidate for prime minister. He has been applauded by the business community for his investor-friendly policies that have led Gujarat to double-digit economic growth.
Nomura, which upgraded Indian stocks to an overweight on Tuesday, cited the upcoming five-state elections - which will be held between November 11 and December 4 - as a positive driver for the market.
"We expect the BJP to perform strongly in the state elections. If the BJP emerges stronger from the state elections, this would be seen as increasing the likelihood of a BJP-led government at the center. Sentiment could improve as a result, since the BJP is seen as more market friendly and more amenable to structural reforms," wrote Sonal Varma, India economist and Alastair Newton, senior political strategist at Nomura in a report.
Markets are still reaping the "honeymoon" benefits from Raghuram Rajan's accession to the RBI governorship on September 4, the bank added.
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Deustche Bank also has an optimistic view on the market. Last week, the bank raised its year-end target for the Sensex to a record-high 22,000 from 21,000 – around 5 percent above current levels.
The bank cited factors including receding investor pessimism, a bottoming out in the economy and withdrawal of liquidity tightening measures by India's central bank.
—By CNBC's Ansuya Harjani; Follow her on Twitter: