Indian markets are ‘priced to perfection'— unlikely to rise much ahead of elections

The Indian stock markets rallied to new highs in 2023 on the back of bullish investors and stronger domestic participation. But analysts warn that the level of optimism seen last year will not be replicated before the general election concludes. 

Indian equity benchmarks the Nifty 50 and BSE Sensex have rallied by more than 6% since the state elections concluded in the first week of December with Prime Minister Narendra Modi's Bharatiya Janata party winning three of four states. 

Both the Nifty and Sensex hit record highs of 22,081.95 and 73,000, respectively, during Asia's Monday afternoon trading session.

The country is set to hold its general election between April and May. 

"The BJP victory has already been priced in at this point. There were many question marks around the party's victory before the state elections, but a lot of that has gone away,"  Peeyush Mittal, portfolio manager at Matthews Asia said. 

The stock markets have factored in "a lot of positives" and investors might only see a single-digit return of 3%-5% before the election kicks off, Mittal told CNBC in a phone interview. 

In the past five general elections, Indian markets have climbed an average 18% six months prior, 8% three months before, 2% in the months after the results, and 10% half a year later, said Shantanu Bhargava, managing director and head of listed investments at Waterfield Advisors. 

"If you were to compare it with the historical average, a lot of returns have already been discounted ... and the victory of the current government is already discounted in the market," he said, adding that the markets have been "priced to perfection."

So when could investors see another big rally in the Indian markets? 

Analysts believe that will only happen