Super breakout in Nifty…What’s next?

economictimes.indiatimes.com:

Indian markets have been on a roll for the past few weeks and have created history by hitting milestone after milestone. With the benchmark index crossing the 19,500 mark this week, the question still remains "Will the Rally Continue?" Let’s answer this question in three parts. First, let’s look at the fund flows.

Currently, India is a hot spot for investment in emerging markets. Foreign institutional investors (FIIs) have demonstrated their confidence in our equity markets by investing Rs 121,728 crores in FY24 so far. This is a significant turnaround from the previous two financial years when FIIs were net sellers.

The comeback of FIIs is a positive sign and suggests that the optimism in Indian indices is likely to continue. Second, let’s look at the short-term price action. When we take a closer look, the Nifty generally sustains momentum after an all-time high breakout.

To give you a gist, there were 11 instances since the calendar year 2003 where the index has given an all-time high breakout. After such a breakout, Nifty has delivered positive returns 72% of the time with an average gain of 12% in the next 250 trading days. As the previous all-time high breakout occurrence was on 29-11-2022, the index has only given 6.74% returns till date and the same is yet to reflect fully.

Consequently, there is a high likelihood of brighter prospects in the future. Finally, let’s look at the valuations. The current Price-to-Earnings ratio (P/E) ratio of Nifty at 22.72x is notably lower than it was during the October 2021 peak (P/E at 28.17x).