A couple of months ago, FIIs were pulling out of Indian markets. Year to date, most broad-based global indices have lost value. Somehow the Nifty has managed to hold its own in this situation and is now trading at 18500 levels. Even though not much has changed on the macro front, FIIs have returned with reasonable force. Investors ought to think about whether Nifty’s valuation is sustainable.

A look into the earnings snapshot shows us that banks have delivered a stellar performance this quarter. Clearly, both public and private sector banks have put their troubled pasts of NPAs behind them. This has led to cleaner balance sheets and adequate capitalisation. The banking engine is set to fire. Even in this scenario of rising interest rates, banks have held on to pricing power by keeping deposit rates low and raising loan rates across categories. The banking story is only beginning to unfold.

For investors, this is a time to be measured in the investing process. Gradual and staggered allocations will allow one to capture upcoming opportunities and avoid locking in too much too soon.

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