Market Rally To Continue Even As Valuation Looks Stretched, Say Analysts

Market participants should stay invested, as the rally will continue even as election results due next week induce heightened volatility, according to analysts. They expect the markets to touch new highs and the VIX index to hit a two-year high. 

"Nifty has taken its own sweet time; it took around 10–12 weeks (to move) between 21,800 and 22,769. Last Thursday, we finally broke through on the upside, and now we have sustained above that," said Hemen Kapadia, senior vice president of institutional equity at KR Choksey Stocks & Securities, to NDTV Profit. "Everything is hunky dory except for the fact that the VIX is 23, and in 2014 it went to 39. So from that point of view, the VIX still has space to go up if history is anything to go by. Apart from this, I think everything is doing well."

However, one needs to be slightly cautious, as there is a major event risk coming up next week. He also said that one needs to be watchful and focus more on quality stocks.

Echoing similar sentiments, Aditya Shah, founder of Hercules Advisors, said that market participants should "stay invested in quality stocks" as India's growth story is going to continue post-election results. He also said that valuations are aggressive, but one needs to stay invested through SIPs.

Looking at the Nifty Bank Shah said he is positive on the banks, especially those whose valuations have taken a beating over the last few years. "Bank Nifty was playing laggard, but it is catching up; we are almost close to all-time highs," said Kapadia of KR Choksey.

Both Shah and Kapadia are positive on the auto segment, which for the last 17 months has seen an upward movement. While Shah was also bullish on selective stocks in the pharma sector, Kapadia said the sector needs to break out of its current levels. If it stays around these levels for a long period, then one can expect the index to fall. However, he currently has a neutral to positive outlook for the segment.