The record-breaking rally has made India’s equity valuations rich, which may slow the pace of upsides from current levels, said analysts.
The Sensex closed at 63,915.42, up 499.39 points or 0.79% from the previous close. The index topped 64,050.44 in early trade on Wednesday, surpassing the previous high of 63,588.31. The Nifty closed at 18,972.10, up 154.70 points or 0.82%, of its all-time high of 19,011.25, beating its earlier record of 18,887.60.
Both indices advanced more than 1% earlier in the day, but traders cut some of their bullish bets by close with the financial markets closed on Thursday for Eid.
Cautious Approach | page 6
“We believe the bulk of this rally is done,” said Kunal Vora, head of Indian equity research, BNP Paribas Securities, which has a year-end target of 19,250 on the Nifty. “Market is trading at a 10-15% premium to its long-term average which does not offer enough headroom to build aggressive bullish bets and a big rally from current levels.”
On Wednesday, foreign portfolio investors (FPIs) were net buyers of Indian shares for the second straight session after being net sellers in the three prior ones. Overseas funds purchased shares worth a net Rs 12,350 crore in the cash segment. The inflows included purchases by foreign funds in block deals involving Adani Group shares.
“Foreign flows have played a big role in the current rally and driving our valuations higher,” said Vora. “Foreign investors do not have too many options to park their money in the equity market globally.”
Since the lows of March 2023, FPIs have been net buyers of shares worth Rs 56,418.86 crore, helping benchmark indices climb over 12% in the past three months.
Domestic institutional investors (DIIs) were net sellers to the tune of Rs 1,021.01 crore on Wednesday, showed provisional stock exchange data.
Vora remains cautious on the Indian markets and sees limited upside from the current levels, citing India’s premium valuations.
Brokerage CLSA said the valuations of Indian equities are at an 80% premium to other emerging markets as against an average 35% for the 16-year-period between 2004 and 2019.
“Investors must remain watchful of risks on India’s monsoon from this year’s El Nino and the future trajectory of the US Federal Reserve’s monetary policy after recently hinting at more rate hikes to tackle sticky inflation,” said Vora.
Positive Sentiment
Sentiment is positive on global equities after US stocks advanced for the first time in seven days, boosted by US economic data Tuesday that eased concerns about a sharp slowdown.
“The odds of an impending recession are falling with every new set of economic data,” said Ryan Detrick, chief market strategist, Carson Group, which currently has over $28 billion in total assets under management. “We have been hearing a lot about a recession this year, but the truth is the US economy is on a solid footing.”
