The Indian stock indices are experiencing a strong rally despite concerns from analysts about high stock valuations. Recently, both the benchmark Sensex and Nifty reached fresh highs, with the Sensex just below the 67,000 mark and the Nifty at 19,793 points. Over the past month, they have collectively gained about 6 percentage points.
While some analysts have expressed doubts about further gains due to the elevated valuations, factors like consistent foreign portfolio funds inflow, a positive economic outlook, strong global markets, and moderate inflation have contributed to the current bull run in Indian stocks.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, mentioned that the global market rally is largely driven by the strength of the US economy, which has exceeded market expectations and dispelled previous recession fears.
Despite the optimistic trend, there are indications of profit booking in the market. Consequently, the Sensex and Nifty traded marginally lower on one particular morning. However, various Nifty sectoral indices, such as Nifty bank, Nifty financial services, Nifty media, Nifty PSU bank, Nifty consumer durables, and Nifty oil and gas, remained in the green.
The influx of foreign portfolio funds has significantly boosted the Indian market, with foreign investors remaining net buyers for several consecutive months. In the last five months, they purchased equities worth substantial amounts, with a notable surge in July.
This influx started following the banking crisis in the US, leading to the closure of Silicon Valley Bank and other banks in March. Moreover, India’s robust economic outlook, as forecasted by global agencies, has increased the appetite for domestic stocks.
Prior to this positive trend, foreign portfolio investors had been selling equities in the Indian market for over a year, starting in October 2021, due to various reasons. In 2022 alone, they sold a substantial amount of stocks in India due to factors like tightening monetary policy in advanced economies and demand for dollar-denominated commodities.
Despite concerns about high valuations and potential risks, the Indian stock market remains resilient, driven by favorable global conditions and sustained foreign investments.
