"We expect the market to yield over 5-10 per cent returns by the election day and a further 10-15 per cent in case the election results are decisive which the market wants, through the rest of the year, irrespective of the economic data points," Jefferies said in a report titles 'India: 2014: All about 2015.'
The report also warned that "if the results disappoint, we would expect a sharp down move immediately post-results, possibly giving up all the pre-election gains."
On the impact of the BJP's prime ministerial candidate Narendra Modi on the market, the report said: "If Modi were to indeed be the next Prime Minister, the market could continue to extend the upside sharply post-government formation for a few months in anticipation of large scale policy changes. But an unexpected new leadership, particularly with a weak mandate, could result in large scale market losses."
Stating that none of the macro data releases or policy actions will have any impact on the markets in the near-term, the report said every such development will remain listless to political developments.
"While anathema to fundamental investors, the hope-driven market could increasingly focus on post-poll investment revival along with IT and telcos," it added.
For the investors looking beyond current negatives, the report said "a majority of the market-relevant data, be it economic or earnings related, is either trending down or trendless at low levels.
Earnings expectations have come down for the sixth year in succession. Some economic parameters, like balance of payments and current account deficit have improved sharply in recent past, though the quality of change makes them vulnerable in the medium-term."
On the monetary policy stance under new Governor Raghuram Rajan, the report said:
"We strongly believe that Rajan seems more inclined to support growth and less concerned about the medium-term imbalances than his predecessor Subbarao."
The report also said there could be lower real negative interest rates, a strong currency and a positive equity market in 2014. Same policies could lead to larger downward market response when local economic or global liquidity tides turn.
On the impact of the new entrant AAP, the report said its populist agenda has added a new dimension to the likely May elections, though it is unlikely to have enough time to make a major difference.
Stating that the current market valuations are lopsided, the report said the broader market moves will largely be a function of political expectations until the elections.
Valuations for the markets are at the extremes, following the divergent growth pattern in the economy in the last few years, it said, adding the ask rate for consumer stocks is too high and for industrials too low.