Nifty, Sensex today hit fresh record highs; do fundamentals justify market exuberance?

livemint.com:

HDFC Securities underscored the Indian markets are doing well mainly driven by flows from FPIs and locals. Sectoral and stock rotation based on developments and relative comparisons, with profit booking postponed, has led to the broadening of the rally. However, Jasani believes Indian markets are not cheap in terms of valuations.

"Once the Q1 results are out, we will better understand FY24 EPS (earnings per share) estimates and the absolute and relative valuation of the Indian markets. Disruption in businesses has led to a shifting of market share from unorganised and small players to larger players who have mastered the art of cost-cutting. This has led to an expansion in the valuation of such stocks," said Jasani.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services believes the domestic market is running ahead of the fundamentals but the market may remain high for some time because of liquidity. "From the valuation perspective, the market is slightly ahead of fundamentals. At 19,700, Nifty is trading at above 20 times the estimated FY 24 earnings.

This is higher than the long-term PE (price-to-earnings ratio) of 16. But the gush of liquidity can keep valuations high for some time," said Vijayakumar. "The surge in FPI buying is keeping the markets buoyant.

Given the sharp decline in the dollar index to 99.82 now, the FPI flows may continue, keeping the market resilient. But high valuations are a near-term concern. Investors can consider partial profit booking," Vijayakumar said.