As we move through November 2025, Indian equities are navigating a phase of consolidation amid a complex mix of fading global headwinds, resilient domestic earnings, and an ongoing rotation in sectoral leadership. The recent months have underscored the importance of valuation discipline, bottom-up investing, and counter-cyclical positioning—key principles that continue to guide our market approach.
Let's unpack the key developments and their implications.
Global Equity Landscape: From Macro Turbulence to Micro Focus
Global markets appear to be transitioning away from a macro-driven regime of tariff anxieties and rate uncertainty toward a renewed focus on earnings quality and sectoral fundamentals. Trade disruptions that peaked earlier this year are showing early signs of normalization, with tariff measures likely to ease over the next quarter.
The U.S. Federal Reserve has maintained its pause stance, with inflation trending close to target and yields stabilizing. As a result, market volatility has subsided modestly. However, the underlying divergence remains—Western markets continue to digest slower growth, while Asia, led by India, benefits from stable domestic demand and improving capital flows.
Commodity prices have steadied, and the U.S. dollar's relative weakness has brought relief to emerging market currencies. For India, a stable INR acts as a key support variable, especially as export competitiveness and tariff realignment evolve through FY26.
Indian Equities: A Market in Transition
Over the last year or so, markets have consolidated, with October being a good month for equities, especially for largecap. Smallcaps which are significanty represented in Mutual Fund portfolios – for the industry they account for roughly 22% of total actively managed AuM compared to about 11% share of smallcap in Top 1000 companies market capitalization. This phase reflects a healthy rebalancing, not a structural reversal. Investors are recalibrating portfolios toward quality and earnings durability, while reducing exposure to overcrowded small-cap trades
Sectoral View: The Rise of "Dark Horse" Themes
The rotation in market leadership continues to unfold. Our portfolio positioning reflects a blend of contrarian and momentum sectors, balancing cyclical recovery themes with resilient compounders.
• Information Technology (IT): After three years of underperformance, relative valuations are now at multi-year lows. With the DXY moderating and margin headwinds easing, the sector is entering a "darkest before dawn" phase.
• FMCG: Excessive valuation froth has dissipated. Companies are shifting focus back to volume growth over margin defense, particularly in urban consumption names. Mutual fund ownership levels have fallen to their lowest since 2014, offering room for re-rating.
• Industrials: While long-term manufacturing trends remain intact, recent exuberance may have been too soon, too fast. Market-cap share relative to profit-pool share is at 2007 highs. A period of consolidation could reset expectations for the next leg of the capex cycle.
• PSUs (Ex-Financials): The multi-year rerating appears to be maturing. Despite inexpensive valuations, the profit-pool contribution continues to decline, suggesting limited scope for further multiple expansion.
Our Quant framework continues to emphasize counter-cyclical sector positioning, identifying areas where profit share, ownership trends, and recent returns are most conducive for mean reversion.
Outlook: Constructive, Yet Measured
We remain constructively positioned on Indian equities heading into CY2026. While short-term volatility may persist due to earnings transitions and policy adjustments, the long-term trajectory of corporate profitability remains encouraging. On an average, earnings of Corporate India have doubled over 5-6 years, and strong macro and balance sheet profile of India Inc suggests that this trend is likely to be case over the coming 5-6 years as well. While valuations are in fair-value+zone, we believe healthy consolidation seen in the last 4-5 quarters suggest that froth in valuations have largely dissipated, providing opportunities for value creation in medium term.
In Summary:
Markets are evolving from a macro-driven correction to a micro-driven opportunity set. The focus is shifting toward resilient earnings, disciplined capital allocation, and bottom-up conviction. While the journey may remain uneven, India's medium-term growth narrative—both in GDP and market-cap terms—continues to strengthen.
As always, staying patient, diversified, and process-driven remains the most effective way to participate in this evolving cycle.
Source: RBI, Bloomberg, Avendus Spark, ABSLAMC Internal Research
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