NIFTY 50 Hit an All-Time High: Should Investors be Cautious?

The Indian benchmark is setting new record highs week after week and has been up by around 28% in the past year and a few of its stocks like Tata Motors and NTPC have more than doubled in the past 1 year, This develops questions in the minds of investors.

2023 Bull Run

The year 2023 has been a fantastic year for markets around the globe with the Indian Benchmark index Nifty 50 and Banknifty up by 20% and 13% respectively and the Major US indices DOW Jones and Nasdaq composite up by 13% and 43% respectively.

The French index CAC was also up by around 17% in the year.

Valuations Concerns

As of the 2023 Bull run, the current Nifty 50 Price to Earnings ratio stands at 23.3, which is up by more than 11% in the past 1 year and is at a 1-year HIgh.The Price to Book ratio of the benchmark index stands at around 4.00 which is also higher than the 5-year average of 3.90.

The key valuations are thereby indicating that it is a time for investors to stay cautious now because unless and until any big correction is not coming, the domestic retail investors will continue to be confident enough to bring more liquidity in the market which is turning the steering wheel more towards momentum rather and putting aside the question of valuation, which can be dangerous.

The markets had reached an all-time high of 22,775.70 and had a quick pullback to 22,536.00. The valuation concerns as mentioned might already be playing in.

Global Concerns

The global cues which were well aligned with the positive Indian market can now turn the tables as on Wednesday The US CPI data came hotter than expected at 3.5% in March vs 3.2% in February, which now puts a clear expectation from streets across the globe that the FED are not going to cut interest rates any soon.

Elections

The 2024 Lok Sabha elections are starting on 19th April 2024, the results of the Lok Sabha elections can play a major role in the upcoming direction of the market.

Many analysts are estimating a 25% correction in Indian markets if the ruling party, BJP loses in the upcoming elections.

Q4 Earnings season: 

The upcoming Q4 earnings starting from April 12 with TCS, will play a major role in deciding the direction ahead for April and May.

Results of various giants like HDFC BANK, Reliance Industries, TCS and ITC will play a major role in deciding the sentimental viewpoint of their respective sectors.

Conclusion: The rise in the valuation ratios, shifting towards momentum and ignoring the question of valuations can be quite threatening for the Indian markets, more than that global cues, upcoming Lok Sabha Elections and Q4 earnings have their share in deciding the market sentiments ahead. Investors should stay cautious at this point as the market is at An all-time high and more volatility is yet to come in the weeks ahead.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.