Indian shares will hit a new record high by year-end despite being rated as expensive, strategists polled by Reuters said, citing high oil prices and election uncertainty as the biggest downside risks to the main index. While the tit-for-tat tariff war between the United States and China has hurt emerging markets and pushed the rupee to an all-time low, the benchmark BSE Sensex Index has gained nearly 14 percent this year and hit a lifetime high of 38,989 on Aug 29, outperforming other major global indices. That comes at a time when India's perennial problem of higher inflation is reappearing due to rising oil prices and also as global monetary policy is shifting to a tightening bias. Despite those concerns and increasing uncertainty ahead of national elections next year, Indian stocks have scaled several fresh highs and are forecast to continue that uptrend. The BSE Sensex is forecast to rise another 2 percent and hit a new high of 39,500 by end-December from Wednesday's close, according to the poll of around 50 strategists taken August 23-30. It is expected to gain a further 4 percent next year. The latest bullish consensus was an upgrade from predictions in a May poll as the index has already breached the end-2018 level forecast back then, largely driven by expectations for strong corporate earnings. Indeed, all 15 strategists who answered an extra question said company earnings growth has yet to peak in India. "Strong macro-economic factors overall will push the index further up. Tax growth, good monsoon rains, rising consumption in the core industries and recovering corporate earnings will support," said SP Tulsian, an independent investment adviser. Asia's third-largest economy took a hit from a ban of high-value currency notes in late 2016 and a hasty implementation of a goods and services tax in July last year, but recovered smartly. It has regained top spot as the world's fastest-growing major economy, a position another Reuters poll said it would retain, supported by increased government spending before 2019 elections which will also benefit stocks. "Elections will confirm whether PM Narendra Modi gets to serve a second term, and continue with his business-friendly policies after his popularity dropped following demonetisation and a premature GST implementation," said KK Mittal, investment advisor at Venus India. However, the cost of India's biggest import commodity, oil, has risen and pushed inflation higher which could compel the Reserve Bank of India to tighten policy a lot faster and earlier than expected, weighing on stocks. "A steep rise in oil prices coupled with depreciating currency is indeed a risk for the equity market which is not being priced-in right now," wrote Rajat Agarwal, strategist at Societe Generale. While many Asian bourses have shown negative returns this year on capital outflows from emerging markets, Indian stocks have outperformed even as international investors have turned into net sellers this year. But a majority, 30 of 42 strategists who answered a separate question, said Indian shares were expensive. The remaining 12 said they were fairly valued and none said they were undervalued. The price-to-earnings or PE ratio - a widely used measure for stock valuation - for the BSE Sensex is well above its long-term average and just a touch below a 10-year high. "Valuations clearly suggest Indian stocks are very expensive at the moment. I have never seen such levels of PE multiples sustaining for a longer period of time," said CA Rudramurthy, managing director at Vachana Investments.