The bank said its year-end target for the BSE index .BSESN was at 19,000 points, a nearly 12 percent upside from current levels.

It expects the broader 50-share NSE index .NSEI to trade in a 4,800-5,200 range in the near-term.

Slowing policy reforms, however, remain a hindrance to economic growth and would be key to a recovery, J.P.Morgan said.

"If policy actions manage to revive corporate and consumer confidence, growth may accelerate into the second half of the fiscal year," the bank said in a note Thursday.

Despite calling the environment "clearly poor," because of risks including slowing economic growth, J.P.Morgan argued Indian valuations are trading at 12 times forward earnings, or one standard deviation below the 10-year historic average.

The Reserve Bank of India's 50 basis points cut in interest rates in April and its combined cut of 75 basis points in the cash reserve ratio so far this year should start impacting the economy late in the year, it said.

A slumping rupee would boost trade, while lower oil prices would ease pressures on India's current account and fiscal deficits, J.P.Morgan added.

The investment bank said it remains "overweight" on private banks, citing "strong" growth in revenues on the back of loan growth momentum.

Its other "overweight" sectors are IT services and health care as part of a strategy of focusing on sectors that stand to benefit from rupee depreciation.

The rupee slumped to a life low of 56.55 to a dollar on Thursday, as less aggressive monetary easing from the U.S. Federal Reserve and weak data from China and Germany fanned risk aversion.

However, J.P.Morgan is "underweight" on consumer discretionary goods given a "demanding" base effect and "adverse" impact from the government's push towards fiscal consolidation.

The bank is also "underweight" on energy and materials.

(Reporting By Rafael Nam; Editing by Subhadip Sircar)

• A Permanent Economic Emergency