Nifty valuation above 5-year average, most narratives priced-in. What should investors do?

With the recent run-up in the market, most of the narrative is already priced in and the market focus will now shift to fundamentals, Axis said.

Since the June 4 market debacle when Nifty hit a low of 21,884.50, it has seen a rally largely moving towards north. The index attained a lifetime high of 24,433.20, traversing 2,560 points or 12%.

The fundamentals that are expected to drive the market include macroeconomic developments, pre-budget cues, Q1FY25 earnings and the progress of monsoon along with the direction of bond yields, oil prices and fund flows.

So far, this year, Nifty has had a good run, albeit with a strong volatility where the index has moved over 11% on the net basis. Its returns over the past 12 months stand at an impressive 25%.

"Based on this, we believe could see a new high in the near term. We maintained our March 2025 at 24,600 by valuing it at 20X on March 2026 earnings. Hence, we recommend investors to remain invested in the market and maintain good liquidity (10%) to use any dips in a phased manner and build a position in high-quality companies -- where the earnings visibility is quite high -- with an investment horizon of 12-18 months," Axis recommended.

Moreover, with a strong catch-up by midcaps and smallcaps in the last couple of months, the margin of safety in terms of valuations has reduced compared to that available in largecaps, the note said.

Axis expects the broader market to see some time correction in certain pockets in the near term with flows likely shifting to largecaps.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)