Short call | FIIs' love affair with India is far from rekindled; Ola, Prestige Estates in focus

Short call gives a deeper insight to markets

Foreign institutional investors (FIIs) may have broken their 38-day selling streak in Indian markets over the past three days, aided by MSCI index rebalancing and political stability following the BJP-led NDA's Maharashtra victory. However, on Dalal Street, the message is clear: the romance between FIIs and India remains uncertain.

Despite the recent inflow, market watchers remain skeptical as active FIIs still continue to remain negative on India. Expensive valuations and a higher "asking price" from corporate India are also expected to deter sustained FII engagement. According to Bernstein, the MSCI India index's price-to-earnings (PE) ratio dipped from 23.4x to 22.6x during the pullback but still trades at a hefty 58 percent premium to emerging markets, up from 53 percent in September.

Adding to the discomfort is the Street’s outlook on earnings. Analysts forecast mid-teens growth for Nifty companies in the latter half of FY25 and early FY26, which experts believe leaves room for further earnings downgrades. Sanjeev Prasad, MD at Kotak Institutional Equities, echoed this sentiment on CNBC-TV18, pointing out that Nifty's valuations remain misleading.

"Even after the correction, the index trades at 21x forward earnings. Outside of banks, valuations across sectors remain steep," Prasad warned.

Global headwinds further complicate this narrative. A strengthening US dollar and rising bond yields make the US markets more enticing for FIIs. And with Donald Trump set to return to the White House in January, uncertainty around his policy plans adds another layer of hesitation for foreign investors eyeing India.

So, while FIIs may have temporarily flirted with Indian equities, a durable comeback looks unlikely anytime soon. For now, the rekindling of this relationship remains a story of unrequited love.

Ola Electric Mobility (Rs 88.10, +20%)

Shares rose and were locked in the upper circuit after launching two scooters. Citi also initiated coverage with 'buy'.

Bull Case: Ola's dominant 38 percent market share, extensive product portfolio, strong R&D, and vertical integration, including Li-ion cell manufacturing, bodes well. Upcoming launches in motorcycles and electric three-wheelers (E3Ws) are seen as potential volume drivers.

Bear Case: Key risks include weak EV penetration, rising competition, product quality concerns, and continued losses.

Prestige Estates Projects (Rs 1,629.45, -4.5%)

Stock fell sharply after Morgan Stanley's downgrade to 'underweight.'

Bear Case: High IP business capex and weaker pre-sales momentum compared to peers could hamper stock returns, notes Morgan Stanley. The company has achieved only 29 percent of its FY25 target in the first half of the fiscal year.

Bull Case: Despite the slower pre-sales growth in H1 FY25, the company remains confident of meeting its full-year target on the back of high-value projects in Mumbai and Delhi NCR, as it expands its presence beyond South India. The BJP's win in Maharashtra can also kickstart stalled infra project which may aid prospects.

(with inputs from Veer and Vaibhavi)