On Meta-Q, I get activity list. But beyond this, there is no keyboard navigation. Ideally, cursor should rest in the search box. Shortlist activities based on the inputs and select activities based on arrow keys. Enter would do what I left click does.

Now, is it not available or do I need to set it up somewhere?

As an alternative, one can use "Activities" keyword in krunner. This will display all activities and one can use keyboard navigation also.

Please file a bug on bugs.kde.org regarding missing keyboard navigation for the activities list.