Nifty valuation rises, but not everyone is worried

livemint.com:

Bajaj Finance. The index touched a record 22,186.65 points during the day, before closing 0.37% up at 22,122.25. Despite the benchmark making new life highs in a matter of weeks, analysts believe that valuations aren’t stretched and markets could continue to move up at a gradual pace from current levels.

The index’s previous life-high was 22,126.8 on 2 February, slightly above the previous high of 22,124.15 on 16 January. On a one-year forward basis, the Nifty trades at a price to earnings multiple of 18.1 times against the historic average of 16.96, shows Bloomberg data. While prices have risen, earnings have grown, too, which has prevented the formation of a bubble.

While revenue of 1,779 listed companies grew by 10.95% year-on-year in the December quarter, net profit surged 25.08% during the period, Mint data showed. Excluding companies in banking, financial services and insurance space, revenue was up a tepid 5.29%, but profits soared 38.59%. “Despite the market hitting new life highs at regular intervals, valuations look ok because of robust earnings growth," said Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies.

“We are factoring 15% earnings growth for FY25, which could be raised in H2 (second half), because of the multiplier effects of government spending ( ₹11.11 trillion)." Nityanand Prabhu, ED and business head, LIC Mutual Fund agreed. “Earnings have been robust; even as Nifty has risen so have earnings, which have not stretched valuations to bubble territory." Though Prabhu has a “bullish" outlook for the long term, a pullback or correction of 5–10%, he said, would be “normal" and “healthy" and could be an “attractive entry point". The 31% rise in the Nifty from its low of 16,828.35 on