Direct Equities: Selective accumulation on consumption revival

New tariffs on US trade and lack of visibility added to the weakness. With the US accounting for ~20% of India’s export market (~2% of GDP), this will impact export-reliant sectors like textiles, gems, footwear, and energy. Domestic Institutional Investors (DIIs) remain steadfast buyers with USD 7.5bn worth buying in Sep and USD 65.8bn worth buying CYTD. On the other hand, CYTD has seen cumulative FII outflows of USD 23bn (Sep saw a net outflow of USD 3.0bn). FIIs transitioned from being net buyers in Q2CY25 to net sellers in Q3CY25 as the steep tariffs meant India was no longer the perceived “safe haven”. DIIs on the other hand maintained consistent buying momentum for ~26 months in a row leading to market breadth turning relatively strong in Sep, as reflected in the BSE Advance-Decline ratio, which stood at 1.05x in Sep vs 0.95x in Aug 25.

Highlights

• Equities to be in buy on dips mode amid domestic consumption revival; accumulate selectively from an 18-24 month perspective
• Near-term challenges remain, but we stay positive on the consumption recovery, supported by multiple fiscal and monetary measures as next internal growth driver GST 2.0 was finalized on 5-Sep-25.  
• Short-term volatility likely to persist due to ongoing tariff pressure, earnings concerns, and foreign outflows. We expect mildly-positive returns over the quarter, but the rally could be broad based.
• (1) BFSI & IT offer favorable risk-reward balance (2) Selective plays in Metals, Chemicals and Realty-proxy sectors (3) Potential tactical plays - Media, Auto and Telecom (4) On the sidelines – US-export exposed manufacturing/pharma/textiles on the back of growth uncertainty and industrials and infra due to scope of deceleration in earnings