'Negative surprises': Why ICICI Securities is underweight on export-oriented stocks

ICICI Securities’ underweight stance on export-oriented stocks has been reinforced by a series of external shocks, even as domestic cyclicals continue to outperform. The brokerage cited two major negative surprises: a steep hike in H1B visa fees to $100,000 and increased tariffs on pharmaceuticals and other products. These developments have heightened risks for export-driven sectors, while domestic sectors are benefiting from strong policy support, ICICI Securities said in a strategy note today.

While keeping its Nifty target unchanged at 27,000, the domestic brokerage said the current environment of FPI selling is acting as a kind of ‘safety valve’ for Indian stock market, preventing them from going into excessive valuation territory like it did during the peak of September 2024 when the market cap to GDP reached over 150 per cent against 130 per cent currently.

ICICI Securities said domestic demand indicators are showing signs of strength, with a promising start to the festive season, robust September 2025 PMI readings, rising government capital expenditure, and growth in core sectors. These trends have translated into the outperformance of domestic cyclicals—industrials, banks, and consumption—which are approaching their 52-week highs. Meanwhile, most defensive stocks are near their 52-week lows, highlighting the widening divergence between cyclical and defensive segments.

ICICI Securities said valuation metrics also point to moderation. India’s premium to emerging markets is returning to average levels, and equity earnings yields are unlikely to exceed 5 per cent or fall below 20 times EPS, supported by favorable growth-inflation dynamics.

"Combined with improving domestic growth and benign inflation, the controlled selling by FPIs is supporting stability in the Indian equity markets," the brokerage said.

On the global front, growth is proving more resilient than expected, with recession fears fading. The OECD upgraded global GDP growth to 3.2 per cent (+20bps) and India’s growth to 6.7 per cent (+40bps). Domestically, a series of pro-growth policies by the RBI, including relaxed norms for corporate lending, phased-out CRR cuts, and other credit-boosting measures, are supporting liquidity and lending.

Inflation remains benign, with the RBI lowering its FY26 CPI projection to 2.6 per cent from 3.1 per cent. Above-average monsoon rainfall and lower crude prices due to higher OPEC output further support India's outlook, the brokerage said.