What does FPI short positions mean for Nifty bulls?

Extreme short positions by FPIs have resulted in lower double-digit positive return possibilities for the Nifty in a year, believes domestic brokerage firm ICICI Securities, while stating that rising fear in terms of high VIX.

“Our one-year forward (May’25) target for NIFTY50 stands at 24,900 (20x P/E multiple) and implies a ~10% upside, against the long-term expected returns of 14%,” said ICICI Securities in a report.

Short-term volatility due to election outcomes tends to undermine powerful medium-term up-cycle factors at play (rising investment rate, corporate profits, capacity utilization and RoE along with low financial leverage and NPAs).

Also read: Wipro share rally over 3% on US contract win

Empirical evidence indicates that 2004’s election did not derail the medium-term up-cycles and the Nifty 50 went on to rise >6x between 2003–08. Relatively high equity valuations in India are a key concern, although the current volatility is improving the picture, added Vinod Karki of ICICI Securities.

Rising investment rate, premium consumption for urban real estate, auto, travel, tourism leisure and premium goods and services as well as a comfortable current account deficit accompanied by oil prices in check have been attributed to the positive trends supporting the potential for a good year ahead by the brokerage firm.

Meanwhile on the downside, a drop in agriculture sector’s growth to 1.4% in FY24 coupled with its large share of the workforce, slow hiring and wage growth in IT services sector and the recent inflationary trends exist both from a cost-push and robust demand pull perspective, and have been stated as the potential risks to the growth outlook.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)