“With moderating inflation expectations, the market has rallied strongly. The question is whether the gains are already priced in,” said HSBC’s analysts Amit Sachdeva, Anurag Dayal and Herald
Linde in a note to clients. “We see several factors moving in the right direction for a Goldilocks scenario, which could continue to lend support for the bull run.”
The Nifty and the Sensex have run up around 17-18% from their June 17 lows. Both indices are around 3% away from their all-time highs. HSBC said Nifty’s valuation, measured by Price to Earnings (PE) ratio at 19.6 times, has recovered above its five-year mean but is still 15% below its peak of 23 times in October 2021 when the Sensex and Nifty hit all-time highs.
Among sectors, valuations of only finance, materials and energy companies are below their five-year means. Out of the three sectors, its most preferred one is financials citing attractive valuations, under-ownership and strong earnings outlook.
