Nifty 50 at 25k: What’s driving Indian stock market? Is it heading into risky territory? Experts weigh in

The Nifty 50 has risen over 14 per cent this year, which is quite a significant gain for a benchmark index. However, the gains in the midcap and smallcap segments have been even bigger. The Nifty Midcap 150 index and the Nifty Smallcap 250 index are up 27 per cent this year.

Experts believe that there may be some market correction in the near future, but the medium and long-term forecasts remain good.

What drives the Indian stock market?

Retail money drives the market. The Indian stock market has seen a strong influx of retail investors over the past few years. Their bullishness towards the Indian stock market has been the biggest reason for the market’s growth.

“The influx of new investors is driving the market. Even now, 8-10 lakh new investors are entering the market every week. The number of investors registered with the BSE has crossed 18.3 crore. In the last 12 months alone, 4.6 crore investors have entered the market,” said G. Chokkalingam, founder and head of research, Equinomics Research Private Ltd.

The recent good condition of the Indian economy and expectations about its further development have strengthened the sentiment of retail investors.

“The growth in markets is primarily a function of overall confidence in the sustainability of the growth momentum. That is why we see multiples in the positive territory compared to historical averages. It is likely to remain that way because structurally we do not have a big challenge from an economic perspective unless something happens globally,” said Pankaj Pandey, head of research at ICICI Securities.

Prashanth Tapse, Senior Vice President – ​​Research, Mehta Equities, highlighted that despite valuation concerns across sectors, markets continued to outperform, mainly due to capital inflows directly from retail as well as through mutual funds, and better-than-expected quarterly earnings in Q1.

“I would like to commend the growth in retail investor participation which has infused capital into the broader market through SIPs, which has helped to keep the markets stable and growing,” Tapse said.

Vaibhav Shah, fund manager at Torus Oro PMS, sees a number of factors driving the market to record levels.

“Globally, when most countries are struggling with growth, India is set to be one of the fastest growing economies. Secondly, strong DII flows have not only helped to bring down volatility but have been a key catalyst in driving markets to new highs, showing the continued strength of domestic liquidity. Thirdly, with the capex announcements over the last few years, the benefits will start flowing, helping India to move towards a new horizon of high and stable growth. Thirdly, emerging market equities will be more attractive as the interest rate cycle peaks,” Shah said.

Is the Indian stock market heading into risky territory?

Valuations are high across the board. The recent rally has overheated the market. Experts say any negative surprise could trigger a sharp decline in the market.

The near-term outlook for the Indian equity market remains cautious as market participants grapple with high valuations and potential macro headwinds, according to Amit Goel, co-founder and chief global strategist at Pace 360.

“We believe that Indian markets are extremely overheated, with a select few sectors attracting most of the investor attention. The weakest hands in the Indian market are pulling out of the strongest hands at very high valuations in these select sectors, significantly weakening their long-term profile,” Goel said.

Goel believes that retail investors’ reaction to market volatility could trigger a correction.

“With increasing concentration of assets in retail hands, any attempt to even partially exit the situation could lead to a 10 per cent fall,” Goel said.

“We expect major Indian indices to start correcting anytime now. Over the long term, Indian equities are the biggest bubble in history, largely due to domestic inflows that are completely blind to levels and valuations. This is unprecedented in world history and will have devastating consequences for an entire generation of the Indian middle class that has been buying into this monstrous bubble,” Goel said.

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