Indian equities are displaying selective momentum as third-quarter updates from key sectors highlight diverging performance trends. According to Marketsmith India Head of Equity Mayuresh Joshi, domestic-focused businesses and largecap stocks remain relatively better positioned amid current earnings and policy developments.

Steel Sector Gains Momentum

Tata Steel has emerged as a standout performer in Q3, driven by strong domestic market performance. The company's results reflect the positive impact of recent government policy measures and favorable market conditions.

The steel sector outlook appears constructive, with expectations of improved EBITDA and margin performance. Industry-wide price increases suggest strengthening market dynamics and enhanced pricing power for steel manufacturers.

IT Sector Shows Revival Signs

The information technology sector is witnessing early signs of recovery, with institutional investors returning to largecap IT stocks. This renewed interest comes ahead of earnings announcements, with valuations providing comfort to investors.

The sector's recovery is attributed to enterprises moving from the AI investment phase to actual implementation, creating new revenue opportunities for IT service providers.

Brokerage and Financial Services Face Headwinds

Brokerage and platform stocks are experiencing near-term pressure due to regulatory changes impacting derivatives trading volumes. Angel One has reported softer client additions and reduced trading volumes, reflecting the sector's challenges.

Despite current headwinds, the long-term financialization theme remains intact. Market experts prefer exchange and asset management companies such as:

• MCX (Multi Commodity Exchange)
• HDFC Life Insurance
• Nippon India Asset Management Company

These companies are favored for their operating leverage potential and structural growth opportunities.

Consumer and Pharmaceutical Sector Outlook

In the consumer segment, discretionary stocks are preferred over durables. While copper prices have increased, inventory buffers are expected to protect margins in the near term. LG Electronics remains a structural investment opportunity, though clearer earnings visibility is recommended before taking positions.

The pharmaceutical sector presents selective opportunities despite persistent regulatory risks. Pipeline strength remains a key differentiator, with Cipla being monitored for its respiratory drug pipeline. Torrent Pharmaceuticals is preferred for earnings stability, while Sun Pharma continues to be tracked for potential opportunities.

Market Outlook

The current market environment is expected to remain stock-specific, with opportunities emerging in metals, select banking and financial services names, and information technology. However, platform businesses and high-competition consumer segments require cautious approach in the near term. This selective momentum reflects the varied impact of earnings updates and policy changes across different sectors of the Indian equity market.

Sustained foreign investor selling and stretched valuations are creating significant risks in Indian equities despite headline index resilience, according to Ajay Srivastava, Managing Director at Dimensions Corporate. Speaking to ET Now, he emphasized that overseas investors have sold nearly ₹2.74 lakh crore worth of Indian equities, representing a crucial signal that domestic investors should not ignore.

Foreign Selling and Valuation Concerns

Srivastava highlighted the scale of foreign investor exodus as a key warning signal for the market. "When global investors vote with capital at this scale, it means they see better risk-adjusted opportunities elsewhere. You need to heed that signal," he explained.

The market expert expressed particular concern about the current risk-return profile of Indian equities:

"If you take equity risk and get 10% returns, which is close to FD rates, it does not make sense," Srivastava noted, adding that several Indian stocks continue to trade at valuation levels rarely seen globally.

Strategic Sector Recommendations

Rather than chasing new investment themes, Srivastava advocates focusing on sectors with strong competitive moats and policy support. His preferred sectors for 2026 include:

• Automobiles: Benefiting from GST cuts and policy support
• Metals: Supported by favorable tariff policies
• Select Banks: Strong fundamentals and regulatory backing
• Telecom: Limited competitive landscape despite policy sensitivity
• Stock Exchanges: Structural advantages and growth potential

"In India, fortunes change dramatically with policy decisions—GST cuts helped autos, tariffs lifted metals. This will continue," he emphasized, dismissing IT as a near-term opportunity due to structural weakness after tax incentive withdrawals.

Q3 Earnings and Sector Outlook

For the December quarter earnings, Srivastava expects strong performance from specific sectors:

He particularly highlighted pharma and CDMO companies as beneficiaries of rupee depreciation against the euro and pound, while warning that consumer discretionary segments could disappoint as "household spending has shifted toward autos and travel."

2026 Investment Strategy

Srivastava maintains a disciplined asset allocation approach for 2026, recommending equal weightings across three categories:

Within Indian equities, he emphasizes "pedigree companies" with long operating histories, strong governance, and proven execution capabilities. "2026 is about pedigree, not themes. Pick companies that have delivered consistently for five to seven years," he advised.

Srivastava also advocates for concentrated portfolios, stating that "your top 10-20% holdings decide returns. Spreading capital across 50 stocks achieves nothing." He believes scarcity matters more than valuation in sectors like defense, where execution rather than order books represents the real challenge.