Broking firm Prabhudas Lilladher remains bullish on Indian stocks, attributing it to the growing depth and resilience. It expects Nifty to hit 25,363 (base case) within a year. Nifty is currently trading at a 3.7 per cent discount to the 15-year average, with a 16.9 per cent EPS CAGR over FY24-26 (12.2 per cent over FY24-26), it said, adding, “We increase our base case Nifty target to 25,363 (24,544 earlier).”

In a report titled “The Juggernaut rolls on”, Amnish Aggarwal, Director – Research, Prabhudas Lilladher Pvt Ltd, said: India is best placed in fiscal terms with fiscal deficit target of 5.1 per cent, GDP growth of 7 per cent, and CAD being at a record lows. “However, with elections being announced, the focus shifts to politics as it will hold key to how markets perform over the next 5 years,” he said in the report.

In bull case scenario, “we value Nifty at 6 per cent premium to 15-year average PE 20x (5 per cent discount to 10-year avg. at 19.3x earlier) and arrive at a target of 26,885 (25,907 earlier); In the bear case, Nifty can trade at 13 per cent discount to LPA (25 per cent earlier) with a target of 22,066 (20,453 earlier),” Prabhudas Lilladher said.

‘Limited upside seen’

However, others, such as HDFC Securities and Elara Securities, are not so bullish given the stiff valuation. According to HDFC Securities, Nifty 50, Nifty Midcap 100, and Nifty Smallcap 100 seem overvalued at the aggregate level advocating bottom-up stock picking for future returns from here, as further expansion of multiples is unlikely.

Another aspect of this rally is that it’s been very broad-based which is evident in the fact that about 70 per cent of stocks in each of the indices are trading above their long-term (12 years) average valuations, said HDFC Securities. This level of overvaluation and breadth has been seen only a few times in the past 20 years (2007 when about 75 per cent of Nifty constituents were overvalued relative to history) and to a lesser extent in FY15-17 (about 44 per cent of mid-cap constituents overvalued) and FY21-22 (46 per cent of mid-cap constituents overvalued). “Thus, we believe it’s time for investors to get more selective and bottom-up across all market-cap indices as the phase of easy and broad- based returns might not repeat in FY25-26,” it added.

According to Elara Securities, markets are pricing in long-term growth at a historically high level, with LTGV for BSE200 at an unprecedented 63 per cent, 1,162 bps above its long-term average, indicating overheated conditions. “However, the Nifty appears more favourably positioned, with its LTGV at 61 per cent, lower than both BSE200 and Nifty Midcap 100, suggesting lesser speculation priced in.”