Axis Direct report highlights that stock-specific opportunities will be crucial in the Indian equity market. Global uncertainty and external pressures limit broad-based gains, making the market more selective and favouring Momentum and Quality stocks.
Market Enters Selective Phase
Stock-specific opportunities are likely to gain importance in the Indian equity market as global uncertainty, tight liquidity and external pressures limit broad-based gains, Axis Direct said in a report. The brokerage said the market has entered a more selective phase, with strong domestic activity providing support while global conditions remain challenging.
“The environment continues to favour Quality and Momentum, but requires greater selectivity and tactical risk awareness as external conditions become less supportive,” Axis Direct said.
According to the report, the market correction in September reduced the effectiveness of trend-based investment strategies across factors, with risk-adjusted returns declining from the previous month. However, Growth and Momentum remained among the few factors, along with Value, that continued to deliver positive risk-adjusted returns.
Momentum Factor Offers Alpha Opportunity
Axis Direct highlighted a widening performance gap between the best and worst-performing stocks within the Momentum factor, pointing to greater opportunities for stock selection. The dispersion spread for Momentum increased to 14.9 per cent from 10.2 per cent in the previous month, while Growth recorded a spread of 6.6 per cent.
“This indicates that stock selection within Momentum currently offers the strongest opportunity for alpha,” the brokerage said.
Axis Direct’s Investment Stance
Against this backdrop, Axis Direct has retained a 60 per cent combined allocation to Growth and Momentum in its quantitative framework, with 30 per cent each. Value has been assigned a 20 per cent allocation, while Quality and Low Volatility have 10 per cent each.
“Despite headline market volatility, the algorithm held our overarching pro-cyclical stance completely steady, maintaining identical portfolio weights from last month,” the report said.
Global Financial Pressures Mount
The brokerage also flagged pressure from global financial conditions. US Treasury yields have crossed 5 per cent, while currency weakness has increased the return expectations of foreign investors. These factors have contributed to net foreign outflows of more than Rs 3 lakh crore so far this year, Axis Direct said.
This has kept broad-market valuations under pressure and limited rallies driven by liquidity. The brokerage expects the market to remain in a consolidation phase rather than moving away from its cyclical investment framework.
Axis Direct said investors may therefore need to focus more on individual stock selection as market conditions become increasingly selective and external risks remain elevated. (ANI)
(Except for the headline, this story has not been edited by Asianetnews Editorial staff and is published from a syndicated feed.)