Direct Equities: FIIs are back; stability ahead

January ’26 was a month of sharp divergence across global and Indian equities. While global markets continued their steady advance, Indian equities saw meaningful underperformance, driven by global geopolitical noise, currency weakness, and risk-off sentiment. However, beneath the volatility, earnings momentum and valuations are beginning to create selective long-term opportunities.

Highlights

•  India underperformed amid global strength: Nifty 50 fell 5.4% (USD) in Jan ’26, underperforming MSCI EM by ~14%, the widest gap in two decades, driven by geopolitical tensions, tariff concerns, and INR weakness. Mid and small caps corrected further, while global equities and precious metals advanced.
• Flows mixed but supportive: DIIs extended their buying streak with INR 69k cr inflows, offsetting FII secondary market selling of INR 34k cr, even as primary market activity slowed.
• Earnings momentum improving with divergence: Capital Goods, Autos, Metals, and O&G delivered strong EBITDA growth, supported by improving auto volumes and easing credit costs. IT, FMCG, Healthcare, and Chemicals remained under pressure.
• Valuations favour selective accumulation: Broad market correction has improved risk-reward, with FY27E Nifty EPS growth expected at ~17% YoY, supporting selective accumulation in mid and small caps over a 2–3 year horizon.