India’s Nifty 50 Index Hits New ATH, But Perhaps It’s Overheated?

Summary:
• Low US interest rates will spur inflows to the Nifty 50 Index, but after a long bullish run this year, could Indian stocks be too pricey?

The excitement surrounding the Federal Reserve’s interest rate cut drove the Nifty 50 Index to new all-time highs on Thursday. The Index hit 25,611 points after gaining 0.1% in the intraday session, with traders expecting increased foreign inflows after the Federal Open Market Committee (FOMC) members voted 11-to-1 to slash interest rates by 0.5%.

Interest rates in the United States will now range between 4.75%-5.00%, with ripple effects expected to be felt across the globe. The Indian economy could potentially be amongst the top beneficiaries of the deep rate cut. According to JP Morgan, the world’s fifth-largest economy is forecast to grow by 6.5% in 2024. The Reserve Bank of India (RBI) has a much higher target of 7.2%. These growth projections make the Indian stock market a dragnet, but there’s an underlying risk.

The downside to Indian stocks’ steep upward trajectory is that they have become pricier. As a result, buyers could soon reach their elastic limit. The blue-chip Nifty 50 Index (INDEXNSE: NIFTY_50) has gained 16.9% year-to-date, underlining substantial gains by India’s listed firms.

However, as things stand, the pressure to take profits might soon set in. Furthermore, the low interest rate regime could raise investors’ risk-taking capacity and drive them to alternative markets with value stocks. This could reduce buyer activity in Indian stocks and pressure the Nifty 50.

Nifty 50 Index today

The buying momentum is on a downward trajectory as per the RSI indicator on the 30-minute chart. That calls for further downside below the 25,474 points pivot mark. Initial support will likely be at 25,366, but extended control by the sellers could take the action lower to test 25,247.

However, a move above 25,474 will favour the buyers to take control, but the upward momentum will likely encounter resistance at 25,598. A stronger buying momentum could enable a break above that level and invalidate the downside narrative. Also, the upside could extend gains to test 25,716.