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How much juice is left in India's market rally?

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The historic mandate won by India's pro-business Bharatiya Janata Party (BJP) has amped up investors' enthusiasm for Indian equities, with several banks raising their targets for the benchmark Sensex index.

The market, which has rallied 15 percent so far this year, still has double-digit gains ahead, according to the revised targets.

Nomura on Friday upped its year-end Sensex target to 27,200 from 24,700 – representing almost 12 percent upside from current levels. The index last traded at 24,363.

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"The historic mandate received by the BJP-led NDA [National Democratic Alliance] translates to a stable government at the center. The timing of this majority government could not have been more opportune as India has moved past key macro hurdles it has faced in the last three years," said Nomura strategists led by Prabhat Awasthi.

"A Modi-led government's key comparative advantage lies in its superior managerial and execution ability, which will help considerably in reversing a debilitating policy paralysis and improving coordination between government departments, in addition jumpstarting the weak investment cycle," he said.

The BJP captured 282 of 543 parliamentary seats in the world's biggest elections that concluded Friday, well above the 272 needed for a majority. It is the first time since 1984 that a single party has won an absolute majority. The NDA garnered a total of 336 seats in the lower house of parliament.

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Short-term catalysts for the market include the formation of a new cabinet over the coming weeks, the presentation of the final budget for 2014-2015 by July and potential policy announcements and "feel good" initiatives by the new government, said Nomura.

Nomura is not alone in its bullish outlook for the market. Citi too raised its year-end target for the Sensex to 26,300 – or an 8 percent rise from current levels.

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"The market run has more legs. The Modi-led NDA has won decisively, and India's equity markets could well have struck gold," Aditya Narain, equity strategist at Citi wrote in report on Friday.

"The new prime minister's record, its economy/jobs focused campaign all suggest an aggressive growth and economic gains ahead. Do however remember the economy's still bottoming: and earnings will likely remain stable. This market should generate steady, surer and a long run ahead… but the (market's) big sprint's probably done," he added.

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The best way to play the market is to overweight banks, IT, energy and cement – which represents "a mix of growth, revival, reform and valuations," Narain said.

Mark Matthews, head of research Asia, Bank Julius Baer expects domestic investors will be a key driving force for the market's gains going forward.

"What I find compelling is that so few retail investors own the Indian market – they only have about $300 billion in equity out of a total market cap of $1.2 trillion. The Indian household generates about $400 billion in savings every year," Matthews explained.

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"I think the momentum for the market here will come more from the domestic side than the foreign side…If the majority of [Indian] people are voting for BJP than I think they've got to like the market, it's just intuitive," he said.