Despite the possibility of the economy bottoming out, the investment cycle could remain weak for another couple of years and earnings downgrades should continue.
"We maintain our defensive stance in this environment, expecting only modest equity returns from the current levels," Barclays PLC said in a research note.
According to the global brokerage major, the sharp performance of Indian equities since the beginning of September 2013 clearly indicates that the market has shrugged off the taper fears and now appears much more optimistic on a stable and strong political outcome for mid-2014 elections.
The National Stock Exchange's 50-stock index Nifty has surged over 733 points since September this year. On September 2, 2013 Nifty was at 5,550.75 points and it increased to 6,284.50 as on December 23, 2013.
However, corporate fundamentals continue to remain weak with earnings growth of the BSE-100 being propped up significantly by the rupee's depreciation.
"We remain defensive and set a NIFTY target of 6,481 for end-2014," the research note added.
The negative trigger for the market include -- a weak mandate post the 2014 elections; NPA risk for banks and INR depreciation.
On the positive side, the key factors are -- expectations of a strong turnaround in GDP growth, a win by BJP in the parliamentary elections and an improvement in capital spending.
According to Barclays the key overweight sectors are IT services, healthcare, energy and consumer discretionary and the key underweight sectors are financials, Industrials and Materials.