Direct Equities: Balancing preservation and opportunity

Jan-25 saw broad-based correction with BSE-500 declining 3.5% (BSE A/D ratio = 0.9x vs. 1.0x in Dec-24) and mid/small-caps notably underperforming (mid/small cap indices down 10%/6%). FIIs turned net sellers (US$9.1bn outflows vs. US$1.8bn inflows in Dec-24). Most sectoral/thematic indices saw declines – key laggards were Realty, Pharma, PSUs (incl. Banks) & Energy. Prospects of growth pick-up in EU, resilient economic growth in the US and Trump 2.0 regime’s ‘America First’ policy action buoyed EU/US equities. Although Dollar Index (DXY) was flat MoM, weakness in Indian equities capped MSCI EM Index returns 1.7%.

Highlights

• Signs of improving macro data from Europe, resilient GDP growth in the US and Trump 2.0 trade tariffs led US/EU equities post robust gains in January. Conversely, Indian mid/small caps saw a huge correction BSE-500 ended 3.5% lower.
• CPSE, Energy & Commodities themes were the biggest laggards over the past 1mth/3mth. Energy theme has notably underperformed FYTD as well.
• India saw the highest outflows amongst peer EMs in Jan-25. Indonesia stands out as the largest EM where net FPI inflows over the past 12-months timeframe.
• Sectors: (1) Caution on US exports/tech heavy sub-segments across sectors amid Trump 2.0 tariffs rejig. (2) BFSI space offers favorable risk-reward balance. (2) Selective plays in consumer discretionary, realty/realty-proxy space as valuations cool-off (3) IT valuations still a tad rich (4) PSUs, defense, GOI capex.