Global brokerage firm HSBC has kept its Sensex target for calendar 2015 unchanged at 26,900, saying China's yuan devaluation could have a "domino effect" on the rupee, triggering heavy capital outflows.
The firm has revised its target to 26,900 in May this year, down from 30,100.
The S&P BSE Sensex closed at 27,931.64 on Wednesday, 100 points above its Tuesday close.
HSBC has cautioned over recent offloading of shares by foreign investors in Indian markets. Overseas investor had pulled out $500 million from Indian equities, marking the highest weekly outflow in 74 weeks.
"Continued logjam in Parliament combined with the devaluation of the yuan led to a sharp spike in outflows from India," The Economic Times reported, citing a note by HSBC's Jitendra Sriram and Vikas Ahuja.
The Modi government failed to pass the land acquisition bill and the goods and services tax (GST) bill in the recently-concluded monsoon session of Parliament, as the Opposition disrupted both the Houses over the Lalit Modi row.
"The delay in passage of key legislations such as GST and the Land Bill has kept investor sentiments subdued," said the analysts.
The depreciation in rupee as a result of yuan devaluation by Chinese authorities is also weighing on the domestic stock markets.
The rupee has fallen by over 2% against the US dollar since China's announced its currency devaluation move last week.
Besides, global rating agency Moody's Investors Service on Tuesday trimmed its growth estimate for India to 7% in the current fiscal year ending March 2016 from a previous forecast of 7.5%, citing lower-than-expected monsoon rainfall witnessed so far across the country.