Axis Direct said the market has entered a more selective phase. (Image Source: PTI) Stock-specific opportunities are expected to become increasingly important in the Indian equity market as global uncertainty, tight liquidity and external headwinds make it difficult for the broader market to sustain a broad-based rally, according to Axis Direct. The brokerage said investors are entering a phase where careful stock selection could matter more than relying on wider market trends. While domestic economic activity continues to provide some support, global financial conditions remain a key source of pressure for Indian equities. “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. The September market correction has altered the performance dynamics across different investment factors, according to the brokerage. Trend-driven strategies became less effective during the month, with their risk-adjusted returns weakening compared with August. Despite the broader deterioration, some factors continued to show resilience. Growth and Momentum remained among the stronger performers, while Value also managed to generate positive risk-adjusted returns. Axis Direct said the divergence among individual stocks within the Momentum segment has become particularly significant. The growing difference between winners and laggards could create more scope for investors to identify stocks capable of outperforming the broader market. The dispersion spread for Momentum widened sharply to 14.9 per cent in September from 10.2 per cent in the previous month. Growth, meanwhile, recorded a dispersion 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 has maintained its existing factor allocation despite the recent volatility. Its quantitative framework continues to give the largest combined weight to Growth and Momentum, with each factor accounting for 30 per cent. Value carries a 20 per cent allocation, while Quality and Low Volatility have been assigned 10 per cent each. The brokerage said the unchanged allocation reflects its continued preference for a pro-cyclical positioning, even as market conditions have become more challenging. “Despite headline market volatility, the algorithm held our overarching pro-cyclical stance completely steady, maintaining identical portfolio weights from last month,” the report said. The strategy indicates that Axis Direct does not see the recent correction as sufficient reason to fundamentally alter its factor-based investment approach. Global financial conditions remain another major concern for Indian stocks. US Treasury yields have moved above 5 per cent, increasing the attractiveness of overseas assets and raising the return threshold for foreign investors considering Indian equities. Currency weakness has added to those concerns. According to Axis Direct, these factors have contributed to net foreign investor outflows exceeding Rs 3 lakh crore so far this year.