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A lesson from market history is that liquidity surge can keep the valuations elevated for an extended period of time, says V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Investors should remember the fact that from the short term perspective valuations are stretched, he said.

Stock markets often surprise, both on the upside and downside.

A month ago Nifty crossing 19,500 appeared a tall task since the US Federal Reserve continued to be hawkish, US bond yields were rising and the dollar was strong in the backdrop of a slowing global economy.

But the scenario has changed with US consumer inflation declining more-than-expected to 3 per cent giving hopes that the Fed is near the end of the rate hiking cycle, he said.

Consequently, the US 10-year bond yield has sharply dipped from 5.1 per cent to 4.7 per cent and the Dollar Index has crashed by nearly 4 per cent from 103.57 to 99.9. This is positive for emerging markets like India, which are likely to witness more capital flows.

In July through 14th FPIs have invested Rs 30,660 crore in India inclusive of bulk deals and investment through primary market, he said.

This reflects the increasing FPI confidence in the Indian economy and markets.

BSE Sensex is up 200 points in morning trade at 66,261 points. IT heavyweights are leading the rally again with Wipro up more than 3 per cent,