Benchmark indices are inching toward record highs as optimism around growth, rates, and liquidity fuels momentum. Yet, stretched valuations and tepid earnings keep caution in the mix
Indian benchmark indices seem to be cruising steadily towards record territory, buoyed by persistent foreign inflows, solid GDP growth expectations of over 6%, easing inflation, and hopes of further interest rate cuts. With the Nifty 50 having cleared the psychological barrier of 25,000 last week, analysts now have their sights set on a possible retest of its lifetime high near 26,300 in the coming sessions.
Yet, beneath the surface of this upbeat momentum, familiar concerns are bubbling up. The recent market rally has once again thrown stretched valuations into the limelight. Q4 earnings from India Inc failed to pack a punch, with largely muted profit growth casting a shadow over the hailing optimism. For many, it feels like déjà vu, a market riding high on sentiment while the fundamentals work to catch up.
The word of caution has also began to spread, as thematic sectors like defence and railways are back into action, marching ahead in recent months, despite little change in fundamentals. Much of the rally in these counters are driven by expectations—prospects of improved order inflows, even though those hopes are yet to be materialized.
Still, market sentiment remains resilient, and most analysts believe the momentum is likely to continue in the near term. Following Nifty’s breakout above the 23,800–24,000 resistance zone, Rohan Shah, Technical Analyst at Asit C Mehta Investment Intermediates, expects the index to move towards the 25,800–26,000 range, which coincides with a key retracement level and a historical price gap.
Building on this view, Rupak De, Senior Technical Analyst at LKP Securities, said that the recent consolidation breakout and move above swing highs have raised the likelihood of Nifty crossing 25,690 in the short term. He identified 25,360 as the immediate resistance, while 24,400 is likely to act as a strong support level in the short to medium term.
With limited room for fresh value picks and the rally showing little sign of slowing, analysts are advising a ‘buy-on-dips’ strategy to capitalise on the prevailing strength in the market. “Given the prevailing optimism, investors should treat pullbacks as fresh entry opportunities. The focus should remain on stocks with strong technical structures and favourable risk-reward setups,” Shah advised.
Echoing the same sentiment, Dhupesh Dhameja, Derivatives Research Analyst at SAMCO Securities, said that intraday dips last week were swiftly bought into, pointing to accumulation by institutional investors and aggressive long positioning.
“Sellers appear to have taken a back seat. Each minor correction continues to attract fresh buying, reinforcing the uptrend. Nifty trading above its 10-day exponential moving average further confirms the bullish bias,” Dhameja added.
As for today, the Sensex closed 270 points lower at 82,059, while the Nifty ended 74 points down at 24,945, both down around 0.3%.