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Already-richly valued India stock market indexes are forecast to scale new highs this year but a new bull run is unlikely, according to a Reuters poll of equity strategists who downgraded their year-end outlook from three months ago.

The BSE Sensex index dropped over 6% last quarter following the failure of a few regional U.S. banks but has since gained more than 8% based on expectations the Reserve Bank of India is done with its modest rate-hiking cycle.

Indian equities, among the best performers among peers in 2022, are only up around 2% so far this year and were not expected to gain much for the rest of 2023.

The Sensex was expected to gain 3.8% from Tuesday's close to a lifetime high of 64,318 by end-2023. It was then forecast to add another 2.6% to reach 65,974 by mid-2024, according to the median forecast in the May 10-23 Reuters poll.

Those estimates were a small downgrade from a February poll.

The Nifty 50 index was forecast to gain 4.6% from Tuesday's close to 19,200 by end-2023 and 19,600 by mid-2024.

Over 70% of analysts, 20 of 27, who answered an extra question said Indian stocks would trade in a narrow range over the next three months.

"The recent 4% rally can't be considered a bear market rally. At the most, this can be construed as a bounce-off from (a) possible bottom," noted analysts at HDFC Securities.

"The downside risk to the market, coupled with global uncertainty, makes it too optimistic to expect that the worst is behind us. Interest rate hikes have seemed to cool down, but any negative incremental macro cues can lead to a hard pivot from central banks across the globe."

While an end to the RBI's modest rate-hiking cycle was a positive for equities, a high probability of a U.S. recession this year is likely to limit their gains, suggesting stock prices will be range-bound in the near term.

At a price-to-earnings ratio of 23, the BSE index was trading above its long-term average of 20.

When asked what was likely to drive stock markets the most over the coming three months, there was no clear consensus among analysts, although over 40% of respondents, 12 of 27, said it would be economic data.

Among the remaining respondents, six said company earnings, three said monetary policy, and six said other factors.

"The valuations have somewhat moderated to a long-term historical average but there remains a risk for some downward revisions to earnings growth estimates, particularly for sectors with higher exposure to the global growth cycle," said Rajat Agarwal, Asia equity strategist at Societe Generale.

(Other stories from the Reuters Q2 global stock markets poll package:)