The investment bank says investor hopes India would deliver reforms after presidential elections in late July have been dashed, while Parliament has been stalled because of the fallout of the controversial coal concessions to private companies.
Investors now hope the government will act in the eight-week window from the end of the monsoon session of parliament on September 7 to the state elections in Gujarat in November.
The brokerage says economic fundamentals have worsened as lower rainfalls in the monsoon season could hurt consumption, while a rally in crude prices could pressure deficits and inflation.
Still, J.P.Morgan remains "positive" on Indian stocks, after upgrading equities to "overweight" from "neutral" on June 21.
However, the bank suggests investors explore hedging strategies to lock in upsides while protecting themselves from any falls in shares in the near-term.
Copyright @Thomson Reuters 2012