Indian stock valuations are "stretched" and better options may be found in Taiwan, Timothy Moe, chief Asia Pacific equity strategist at Goldman Sachs Group Inc., said by video link at a press event in Mumbai today.

"Valuations in India are on the elevated side right now," Moe said from Singapore. "Valuations will narrow down as U.S. and other developed economies in northern Asia catch up."

This year's 13 percent rally makes the Sensex the best performer among the world's 10 biggest stock markets. Foreign fund inflows have surged 75 percent this year, making the gauge's 18.7 times estimated earnings the most expensive in Asia and among the BRIC markets that also include Brazil, Russia and China.

India is the only market with significant negative earnings revisions over the past three months, according to a slide displayed during Moe's presentation.

Overseas investors purchased a net 769 million rupees ($17.2 million) of Indian shares on Dec. 6, taking this year's record inflows in equity to 1.34 trillion rupees, according to data on the website of the Securities and Exchange Board of India.

Eoin Treacy's view Indian banks are currently engaged in competition to attract customers. They have been raising deposit rates while leaving interest rates unchanged which is squeezing margins. Banks are an important sector in any market and as liquidity providers their performance is often a bellwether for the wider market.

The Bombay Banks Index has led the wider Indian market and there is no reason to believe this has changed. It has outperformed since bottoming in March 2008, broke to a new high in September and encountered resistance in the region of 15,000 in November. It rallied back to 14,000 last week but has given up that advance. It is rapidly unwinding its overbought condition relative to the 200-day MA and a sustained move below the trend mean, currently in the region of 12000, would be required to question medium-term upside potential.

The Sensex Index broke out of a yearlong range in September and retested the early 2008 peak a month ago. It has not fallen as sharply as the Banks Index but a continued reversion towards the 200-day MA remains the most likely near-term prospect.