Thailand stocks have rallied sharply this year, an impressive feat given May's military coup, but despite high hopes for the new administration's policies, analysts don't expect shares to rise much further.
"The easy money looks to be already behind us," Nomura said in a report Tuesday.
The SET index is up more than 17 percent so far this year, and up more than 8 percent since mid-May, when Thailand's army chief General Prayuth Chan-ocha declared the military had seized power in a coup that followed more than six months of political protests. On Tuesday, the index ended down 1.1 percent.
"The domestic stock market has taken a positive stance towards a clearer political outlook and the junta's short-term economic policies," Nomura said. "The market has almost priced in the optimistic outlook. The honeymoon period is almost over and reality will hit soon."
Nomura expects the first phase of the junta's reforms is done, with a second phase of implementation and execution about to begin.
"The country is poised for an uphill battle with regards to political, economic, social, and education reform. Historically, such changes often take a long time before results are seen," it said. "If the reforms turn out to be another wasteful process like the coup in 2006, which brought further conflicts, we believe the SET could retreat from its current high levels."
There are other concerns about the sustainability of the rally. Valuations are increasingly demanding, Nomura noted, with the market already trading at 14.0 times forward earnings, even as consensus earnings estimates are facing cuts.
The country's high household debt levels could also begin to constrain domestic consumption and not all of the new policies are positive for stocks, such as the decision to delay bidding for 4G telecom contracts, the bank said.
Nomura has set a 12-month SET target of 1616, suggesting limited further gains. It believes any further upside will need consensus earnings and economic growth upgrades, the implementation of long-awaited infrastructure projects, a sooner-than-expected return to political normalcy and more liquidity.
"Unfortunately, none of these are clearly visible at this point," it said.
Others are also less than optimistic about the possibility of further stock gains. Bank of America-Merrill Lynch analysts believe "less is happening on the ground" than is implied by some positive data, such as June's 7.2 percent on-year rise in exports.
The government's recently approved budget is conservative, with expenditure set to rise only 2 percent from the previous year, with limited increases in investment spending, Bofa noted.
Ongoing personnel changes at the top levels of key government agencies and state-owned enterprises are set to continue, likely delaying major decisions, especially for infrastructure projects, it added.
"The SET is in the richly valued territory," based on its close correlation with the size of the country's money base, it said. "Unless the baht appreciates more or the Bank of Thailand raises money base (which is far less likely), the upside for the SET appears to be limited."
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1