Indian indices gained for the fifth straight month in July, with the benchmark Nifty rising 2.9 percent on the back of continued foreign investor inflows, improving macroeconomic data, and positive global trends. The month also witnessed the benchmarks, broader markets, and many other sectoral indices hitting multiple new highs.
Vinod Nair, Head of Research at Geojit Financial Services, noted that after a few sessions in the red in the last part of the month, the Indian indices have resumed their rally, following the global market trend, as cooling inflation across the globe gave hopes of an end to the policy tightening era. The latest positive development was the Eurozone's inflation slowing for the third consecutive month in July, coming in at 5.3 percent, in line with market predictions. Moreover, the eurozone economy grew by 0.3 percent during the June quarter, according to preliminary estimates, slightly surpassing market expectations, he informed.
PSU banks, realty, pharma, metal and energy sectors emerged as top performers in July, making significant contributions toward overall market performance. Also, mid-and small-cap stocks outperformed, indicating continued investor interest in these segments. The midcap and smallcap indices rose 5.5 percent and 8 percent, respectively.
All sectors were in the green in the month of July. Nifty PSU Bank topped the sectoral indices in July, up over 12 percent, followed by Nifty Pharma, Nifty Realty, Nifty Metal and Nifty Energy, which rallied around 9 percent each. Meanwhile Nifty Auto gained 3.7 percent and Nifty Bank added 2 percent. Nifty IT and Nifty Fin Services also rose over 1 percent each.
Among stocks, 34 of 50 or 68 percent of Nifty50 constituents gave positive returns for the month whereas 16 were in the red. Cipla surged the most at 16 percent, followed by NTPC, which rose 15 percent. Meanwhile, ONGC and Hero Moto also advanced over 10 percent each. Tata Steel, Hindalco, Dr Reddy's, Sun Pharma, L&T, Tata Motors, SBI, ICICI Bank, Grasim, Bajaj Auto and Adani Ports also advanced between 5 and 10 percent in July.
On the other hand, UPL was the top loser, down 9.5 percent in July, followed by HCL Tech, Eicher Motors, LTIMindtree, HUL, and Britannia, which shed between 4 and 6 percent each.
Outlook and Strategy
According to brokerage house Nirmal Bang, major equity markets world over continued their momentum for the 4th month, starting from April this year.
"We feel the momentum is driven by declining commodity prices which has led to inflation coming off and improvement in corporate margin. Though FED has increased the interest rate from Zero to 5.5 percent in the last 15 months, it didn’t have much impact on corporate earnings there. In recent earnings as well, the US corporates continue to report better than expected earnings. Here in India as well the inflation has come under control and corporates continue to report strong earnings growth. The declining dollar has supported the risk on trade and FIIs continue to pour money into emerging markets. Apart from FIIs, India also has very strong domestic money participating in the equity market. This continuous up move in the market has taken the valuation of NIFTY to pre-COVID higher end of the range and made the market overbought," said the brokerage.
It further noted that Fed has again changed its stand in the recent meeting, now indicating that further interest rate increases will be data-driven whereas a few weeks back it was giving an indication that there will be two interest rate increases. In the recent past, we are seeing up-move in crude and food grain prices globally. Anyhow, core inflation (ex energy and food) in the US is still running high. If crude oil price and food grain prices continue their up-move, then again we may see some risk of inflation emerging, the brokerage explained.
The brokerage feels that the continuous run-up of the last 4 months and higher valuation give an opportunity to take off some money from the market. It expects Nifty to see some correction in August month and the index can see a range of 19,300 to 20,000 in August.