Mumbai: American brokerage firm JP Morgan said it remains "positive" on the Indian stock markets going into the second half of the year even as the it stated that the government is yet to delivery on key reforms.

Saying that the economic fundamentals have deteriorated in the recent past as the government has not been able to move ahead with reforms, JP Morgan in a report said, "The government is yet to deliver on key reforms, while economic fundamentals have deteriorated".

"The first volley of reforms was expected after the presidential poll in late July. But that has not been the case. The monsoon session has been stalled following the CAG report on coal block allocations. Coalition allies continue to be reluctant on key reforms," the report said adding, "Bulls are now getting edgy."

Though the brokerage stated that the economic fundamentals have worsened following poor monsoon and due to the recent rally in crude prices, JP Morgan is still "positive" on the domestic stocks after upgrading equities to "overweight" from "neutral" on June 21.

"We are positive on the domestic market going into H2 and remain constructive over the medium term. But we advocate exploring hedging strategies to lock in upsides and protect downsides over the near term," the report said, adding it "maintains its overweight call on India".

The markets had been anticipating economic reforms, particularly after P Chidambaram assumed charge as the Finance Minister.

After plunging over 25 per cent in 2011, both the Sensex, as well as Nifty have gained over 16 percent so far this year, outperforming most of the global indices on low valuation and bargain hunting by both FIIs and DFIs.

Noting that in the first quarter, the Sensex has done well, the report says MSCI India (Morgan Stanley Composite Index) rose 12 percent in absolute terms and has outperformed MSCI-EM (emerging markets) by 500 basis points.

The report said that though the government has dashed the hopes of investors that the government will deliver reforms after presidential elections, it says "investors now hope the government will act in the eight-week window from the end of the monsoon session on September 7 to the state elections in Gujarat in November."


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