Experts recommend avoiding these stocks; Nifty 50 is expected to touch 24,600 by December 2024.

Analysts recommend avoiding overvalued stocks from high-valuation sectors such as energy and capital goods, while predicting a target of 24,600 points for the Nifty 50 index for December 2024 on the back of weak earnings and a strong macroeconomic backdrop.

Market analysts say the Indian stock market is witnessing a situation where high valuations in some sectors are limiting investment potential, while a stable macroeconomic environment is encouraging investor interest in domestic stocks.

India’s two leading stock indices, Sensex and Nifty 50, are down around 1% from record highs on sour sentiment over Budget 2024 and a weak earnings season.

“First-quarter earnings were pathetic. The IT sector did slightly better, but overall market earnings were not strong enough to support the upgrade. Banking stocks are not overvalued at the moment and we do not see a significant decline in banking stocks in the future,” Vinod Nair, head of research, Geojit Financial Services.

Nair said he is cautious about the banking sector in the short term, but the IT sector does not seem to be a risky investment as companies are maintaining strong cash flows and there are more deals happening in the artificial intelligence space.

“There is a sectoral rotation in the market. It is suggested to book profits in energy and capital goods stocks which have already witnessed a sharp rise. Earnings growth is expected to improve in the coming quarters, Nair added.”

However, after the current high valuations, Nair indicated that favourable domestic economic fundamentals such as higher domestic demand and falling retail inflation while wholesale inflation is rising are likely to support EBITDA margins and company execution. He also believes that earnings growth will be better in the coming fiscal quarters.

Nair has set a base target for the Nifty 50 index at 24,600 points by December 2024 and a growth target of 26,000 points, showing that there is not much room for growth in the stock market.

In his 2024 budget speech, Nair highlighted that the government’s plans are aimed at strengthening the aquaculture industry, as well as the electronics and renewable energy manufacturing industries.

Also Read: Indian Stock Market Sees Increase in Volatility After Budget 2024 Announcement

But Nair cautioned against getting carried away by sectors like energy, capital goods and real estate as they are overvalued. The same was echoed by Avinash Gorakshakar, Head Research at Profitmart Securities, who advised investors to avoid sectors like metals and capital goods as he believes they are overvalued.