New Delhi, Aug 1 (IANS) The Sensex is now trading at 25 times trailing one-year earnings. It is important to note that the rally is driven by PE expansion, not commensurate earnings growth, says V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The resilience of the US market, where the rally is spreading to the broader market, is supporting global markets. But the rally is stretching valuations beyond comfort levels, he said.

The FY 24 Q1 earnings growth is muted except in banking and refineries. Results indicate that rural demand is yet to pick up in a meaningful manner, he said.

Even though the Indian economy is in a sweet spot and it makes sense to remain invested, investors should be cautious in their fresh investment, particularly in chasing low grade small-caps, he added.

Sensex is trading down 16 points at 66,511 points led by losses in Powergrid down a massive 5 per cent.

Anand James, Chief Market Strategist at Geojit Financial Services said on Nifty outlook, being back in the 19770-840 region, potential for regrouping of bears is high. “Yet, we feel that upside momentum should prevail, with yesterday's turn higher ticking several boxes, taking us to the verge of a flag breakout that should set the trajectory firmly enroute 20600”, he said.

While we await a push above 19,800 to confirm such a move, downside marker may be pushed higher to the 19725-695 region, he added.