Flip side of rally: Valuations stretched

MUMBAI: Investor wealth has surged by Rs 4 lakh crore since the sensex's previous peak (December 1, 2022). "The recent pause in US Fed's rate hike cycle has helped improve global risk appetite, and India has been one of the beneficiaries. India benefits due to its strong macroeconomic outlook and corporate earnings growth, which is quite attractive-especially relative to China," Pratik Gupta of Kotak Institutional Equities said in a research note.

Domestic factors like falling inflation, robust tax collection and a stable rupee have supported the rally over the last two months, brokers and analysts said. Global markets have been in high spirits in recent weeks as US recession fears receded. "Most markets are at 52-week highs. Last year, investors had discounted a US recession in early 2023. But that didn't happen and markets are now compensating for the overreaction," V K Vijayakumar of Geojit Financial Services said.

Global headwinds persist, and the recent rally has stretched valuations, analysts said. "Valuations are now a bit expensive, which may cap further upside in the short term, but the long-term outlook for India is still very attractive," Gupta added. Analysts added that a weak monsoon may also play spoilsport for stock investors "Wednesday's rally did not gather steam as investors traded with caution ahead of the US Fed chief Jerome Powell's testimony before the US Congress later in the day," Shrikant Chouhan of Kotak Securities said.