D-St bulls charge again: What's pushing Nifty 140 points higher to fresh record highs?

Valuations in mid and smallcap segments have entered a 'bubble territory' warn analysts.

The euphoric rise of domestic markets continued on December 20 morning deals with the benchmark Sensex and Nifty scaling all-time highs of 71,913 and 21,593 amid positive global cues and no immediate red flags.

Market observers, however, continue to fret over premium valuations as investors flush money.

"The Nifty's achievement of 22,000-mark is possible this year but sustaining that level would be a concern," Hemen Kapadia, senior vice-president of institutional equity at KR Choksey Shares & Securities, told Moneycontrol.

For now, he believes that a correction would act as a stepping stone to make markets healthy.

Anand James, chief market strategist at Geojit Financial Services, remained conscious of "impending volatility" due to acute overbought conditions in the market. "Extension of the Nifty's uptrend to 21,850 or 22,500 may be possible but downside markers for the day may be placed near 21,440 levels," he said.

Also read: HDFC Sec sees 8-10% upside for Nifty next year, says mid & smallcap rally not over yet

In the first hour of morning trade, the Sensex climbed 476 points or 0.6 percent to hit record highs of 71,913, while the NSE Nifty 50 jumped 140 points or 0.6 percent to lifetime highs of 21,593 levels.

Strong global set-up, declining yields, and weaker dollar have fuelled domestic investors' optimism ahead of the new year. Overnight, all major averages in the US markets traded in the positive territory, with Dow Jones and tech-heavy Nasdaq Composite hitting fresh lifetime highs.

Asia-Pacific markets, too, mirrored similar trends, tracking Wall Street gains and inched higher in Wednesday's deals.

Back home, broader markets outperformed the benchmark indices as Nifty Midcap 100 and Nifty Smallcap 100 gained 0.6 percent each, as of 10:10am.

But valuations in these segments remain extreme and have entered a "bubble territory", warned analysts. "Valuations in the mid and smallcap segments are excessive. Chasing mid and small caps at these valuations is risky," said Vijayakumar, chief investment strategist at Geojit Financial Services.

Also read: Accenture's weaker-than-expected growth guidance may drag IT stocks lower

He recommended that the safety lies within the largecap space and investors should give importance to safety in this time of optimism.

All sectors participated in Wednesday's uptrend. Nifty IT, Nifty FMCG, Nifty Media, and Nifty Consumer Durables were the top performers, gaining 1 percent each.

Despite Accenture's muted Q2 revenue forecast, IT counters were abuzz in early deals. Analysts believe this to be a macro playout instead of fundamental.

"The market is factoring in the US rate cuts scenario. Once the US goes through multiple rate cuts, the US economy will improve and thereby, IT budgets will get bolstered," said Nishit Master, portfolio manager at Axis Securities.

He, however, sees this as a short-term phenomenon and does not expect the rally to sustain in the medium-term if rate cuts do not materialise sooner.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.