Direct Equities: Selective equity accumulation in the medium-term

Frontline indices of the Indian equity markets gained on back of a thumping win by the NDA government in Bihar, an INR 450 bn scheme to support exporters and a robust earnings season. (Nifty-50 +1.2%, Nifty mid/small cap +1.39%/-3.6% in USD terms) Notably, this was the first month in last 6 quarters to see an EPS upgrade for NIFTY FY26E and FY27E EPS after a consistent downgrade of ~8%. FIIs turned sellers again in the secondary markets, but they continue to pump in money in the primary markets, leading to a net buy figure on a combined basis for the second consecutive month. Domestic Institutional Investors (DIIs) remain steadfast buyers with INR 77k cr worth buying in November, continuing their buying streak for 28 months now.

Highlights

• The MSCI EM Index lost 2.5% (in USD terms), pushing their year-to-date returns close to 27% while Nasdaq YTD gain was 21%. US markets reversed its losses in the latter half of the month as the US government shutdown ended and hopes of a rate cut by Fed increased.
• n 2QFY26, Nifty50 EPS grew 8.4% YoY (vs. expectation of +4.4% YoY). Ex-financials, EPS grew 12.4% YoY (vs. expectation of +10.8% YoY). With this, the ask rate for the balance 6 months of FY26 stands at 7% leaving room further EPS upgrades in the coming months.
• Buoyed by the uptick in earnings, falling crude prices supporting the fiscal deficit, hopes of a trade deal with US and, a resilient domestic investor base, the outlook on Indian markets can see a “Santa rally”.
• Sectors: (1) BFSI & IT offer favorable risk-reward balance (2) Selective plays in Metals, Power, Chemicals, Textiles, Disc. Consumption and Realty-proxy sectors (3) Potential tactical plays - Media, Auto, Pharma, US-exposed manufacturing and Telecom (4) On the sidelines –Infra/Energy on the back of growth uncertainty and capital goods, defense, new age tech and FMCG due to scope of deceleration in earnings and punchy valuations.