Banking stocks propel Sensex, Nifty to new highs but analysts warn of stretched valuations

India VIX, which measures volatility over next sessions cooled off by a percent to 15 level

Benchmark indices the Sensex and the Nifty hit fresh record highs of 73,819 and 22,353 on March 1 amid broad-based buying across sectors. Experts said the bullish undertone is intact but stretched valuations are a concern.

The Sensex and the Nifty settled up to 1.7 percent higher at 73,745 and 22,327 on March 1. India VIX, which measures volatility over the next sessions, cooled off by 2 percent to 15 level.

"After the Nifty's life-time high above 22,300-mark, we believe that the benchmark can march up to 22,800 in the next few sessions, provided that banking stocks participated equally," said Ajit Mishra, Senior Vice-President of Technical Research at Religare Broking.

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VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, however, does not see any room for a further rally due to elevated valuations. "Currently, the Nifty is trading at 22 times (x) FY25 forward earnings, as against 10-year historical averages of 17x," he said.

Broader markets, too, were upbeat on March 1 as Nifty Midcap 100 and Nifty Smallcap 100 indices surged up to 0.9 percent. But, Vijayakumar of Geojit Financial Services believed this rally to be short-lived after regulatory body AMFI asked mutual funds to moderate small and midcap fund inflows.

Sectorally, Bank Nifty, which carries around 33 percent weightage in Nifty surged 2.5 percent led by IndusInd Bank, ICICI Bank, SBI, PNB, and Axis Bank. On the other hand, Nifty Metal index emerged to be the best performer of the day as it climbed over 3 percent on March 1.

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Contrary to this, Nifty Media and Consumer Durables indices were top sectoral laggards as they declined over 1 percent each.

Markets positive momentum was reinforced after GDP data showed that the Indian economy grew at 8.4 percent during the October-December period driven by manufacturing and construction sectors, while gross value added or GVA was at 6.5 percent.

This strong GDP print would make Reserve Bank of India (RBI) re-think about its hawkish stance, said Mayank Jha, Senior Economist, HDFC Bank. "We expect rate cuts to happen this year, given that the Indian economy is on a strong foot," he told Moneycontrol.

As an investment strategy, Raja Venkatraman, Co-Founder NeoTrader suggested traders to adopt a cautious stance going ahead, but not remain on sidelines.

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