When I lost weight a few years ago, I dropped two sizes on my bottom in a couple of months so I can definitely empathize with what is happening to you, Ramya. I was happy to see the weight go and I loved to see the muscle definition, but I was sad that all my favorite clothes no longer fit.
If your lifestyle has changed to a more active one, and assuming you prefer your new body shape, I'd pack, or give, away anything that really doesn't fit your new shape. LIke you, I found that I could wear a few items even if the fit was baggier if I belted, or tucked, to hide some of the extra fabric. But I also found I couldn't avoid buying some new items if I wanted to look half-way decent.
What I'd suggest is to think of a very small capsule that could get you through the transition phase so you can slowly start to re-build your wardrobe. My transition capsule was two pairs of pants (one jean and one smart casual), a skirt, a dress, a cardi, and a couple of nice tops. These six items, along with what I could salvage from my previous wardrobe, kept me going for several months. I set a budget for this capsule, and then shopped around to find the best buys, with the important factor being that every item had to work double and triple duty. I actually spent 75% of my budget on the smart/casual pants and the dress in order to find something that looked good enough to wear day after day. The tops, skirt, and cardi were inexpensive items bought on sale; they were not as durable, but they got me through the transition phase. Fortunately, my feet didn't change size and had a couple of pairs of shoes from my closet to complete the capsule.
It was suprisingly easy to get dressed using these basic pieces. My outfits may have lacked variety, but I always felt that I had something appropriate to wear that fit my new shape.