Despite the NDA's emphatic poll win and subsequent rally in markets, French brokerage BNP Paribas Wednesday said it is retaining its year-end targets for the benchmarks.

Possibility of a stable government coming to power was already factored in into the 42,000 points target for the Sensex, while historically, the post-results euphoria has not sustained, it said.

The 30-share BSE benchmark corrected 247.68 points, 0.62 per cent, to close at 39,502 points on Wednesday.

"The euphoria is for short term from a market performance perspective and we have seen that it goes down in a month or two," its BNP Paribas Asia-Pacific Equity Strategist Manishi Raychaudhuri told reporters here.

He said Prime Minister Narendra Modi's new government should focus on land and labour reforms and should take bold steps in the first two years itself.

Capital, which is the third factor of production, is "half-sorted", he said adding the crisis at the non-bank lenders who account for a fifth of the overall credit is something to watch out for.

The problem with the non-banking financial companies (NBFCs) is "severe and not a problem of small magnitude", he said.

While having the same regime is welcome from a policy continuity perspective, we will have to be watchful of the fiscal discipline, he said pointing to the growing tendency to do off-balance sheet borrowings.

He said the Reserve Bank of India (RBI) should look at at least two rate cuts which will reduce key rates by 0.50 per cent by the end of the year, especially when growth is set to dip to the 7 per cent for 2018-19.

When asked about how commentary of the winning combine focusing on welfare measures will be received by portfolio investors looking a shift away from the welfare model, Raychaudhuri said some of the measures like digitisation of land records can also have great impact on rural populations.

The brokerage is overweight on India, along with other Asian peers including China and Indonesia.

On valuations, its head of India equity research Abhiram Eleswarapu said while the benchmark indices are valued high, there exist opportunities in the small- and mid-cap space, which has seen massive corrections in the recent past.

The brokerage feels there can be some recovery in the telecom sector as the competitive pressures in the sector ease down.

Raychaudhuri also said there is a case for curtailing the government's role in state-owned companies, especially those which are running at a "sub-optimal" level.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)