Ved Prakash Chaturvedi, MD, Tata Asset Management stuck a cautious note by saying that the current rally is fuelled by liquidity and that fundamentals will need to catch up to sustain the current valuations. Here is what he told ET Now on Wednesday:

People are talking about significantly higher levels by December end. Do you believe we have the legs to go up to 5500 or thereabouts in a month – month and a half time?

Obviously we are into a liquidity driven rally. We have a situation where our markets are responding partly to the improving fundamentals. In my view the fundamentals are improving only gradually, but, there is a huge burst of liquidity which has come to emerging markets and to India. As long as the dollar carry trade lasts, I suspect markets will keep going up. At the moment there is no reason to suspect that the dollar carry trade will alter its direction and hence I think a reasonable guess is that we will keep moving up.

But let me just make two points. I think at some point of time this entire carry trade will reverse and I suspect that if that happens and a situation where our economy has a significant growth momentum I think the reaction to such a withdrawal of liquidity will not be huge. Otherwise may be at that point of time - which might be some few months - away we will have to brace for some downside.