Election results 2024: A sharp rally on Monday pushed Sensex's year-to-date gains by over 4,200 points; and one-year rise to the tune of 13,700 points, making a few investors wonder whether there is more legs to the ongoing Modi rally, as a BJP win was already in the price.
Elara Securities said the prevailing rich valuations are pricing in policy reforms. India’s stock market is trading at a premium to peer emerging markets, especially heavyweights China & South Korea, and to its historical past, it noted. The broking firm said domestic and global investors are anticipating an aggressive reform agenda that can catapult India into the next orbit of growth.
"Forward earnings do not justify these valuations, especially in sectors that are linked to government policy actions, such as defense, railways, and power. Earnings need to catch up so that after the initial celebration of the election results, markets can potentially see profit-booking. Further upside in repeat names looks unlikely, as fundamentals are not in sync with the stock prices," it said.
Kotak Institutional Equities finds little value in the market. It believes most sectors and stocks overvalued relative to the fair value of the stocks, with the extent of overvaluation increasing in the inverse order of market capitalization, quality and risk. "A large BJP victory may sustain rich-to-bubble multiples in parts of the market (automobiles, capital goods, PSUs) for longer, but we would be surprised if many of the lofty embedded expectations come to fruition," it said.
Vikram Kasat, head of advisory of Prabhudas Lilladher differs even if he believes a few investors will have the courage to participate on the upside.
"People will continue to clamor for a correction, but I believe every dip will be bought into. The month of June could be a defining one for the Bulls, so one should make the most of this opportunity and stay a bit greedy," it said. Nomura India, meanwhile, said the India stock market's return of 5 per cent in 2024 so far is primarily driven by change in earnings and impact of roll forward. The P/E multiple in fact has corrected marginally over the period, it said while suggesting a Nifty target of 24,860.