Monthly wrap: NIFTY50, SENSEX surge for second straight month in July as FIIs turn net buyers, IT shares zoom

The Indian equity benchmarks rose for a second straight month in July on the back of better than anticipated corporate earnings, return of foreign institutional investors, calm geopolitical tensions in West Asia and a broad-based buying interest. The SENSEX and NIFTY50 indices have surged 2% in July, data from stock exchanges showed.

Return of FIIs

The sentiment towards equities turned favourable during the month as foreign institutional investors turned net buyers in July for first time since February. FIIs bought shares worth ₹15,412 crore during the month compared with they being net sellers to the tune of ₹49,340 crore in June, ₹32,963 crore in May, ₹60,847 crore in April and ₹1,17,775 crore in March, data from the National Securities Depository Limited (NSDL) showed.

The return of FIIs can be attributed to a selloff in artificial intelligence (AI) related shares in South Korea and other global markets as their valuations became highly expensive and market participants raised questions about their high debt levels, analysts noted.

"The flow picture turned, with FII cash-market selling collapsing to ₹9,680 crore, the smallest for the year, and the final sessions printing outright foreign buying alongside DII purchases of ₹34,703 crore for the month," said Harshal Dasani, business head at INVasset portfolio management services (PMS).

Meanwhile, first quarter earnings reported by companies either met or surpassed analyst estimates, market participants added.

"Earnings picture held, with banks printing multi-decadal asset quality, IT delivering its best month in two years, and pharma sitting near record highs. Breadth confirmed the repair, with midcaps and smallcaps participating rather than lagging," Dasani noted.

Resilient economy

Support for equities also came from the resilience Indian economy showed during the first quarter in the backdrop of challenging geopolitical environment.

The Indian economy appears to have weathered a challenging Q1FY27 as indicated by the high-frequency indicators. PMIs, auto sales, fuel consumption, bank credit and power demand remained broadly supportive, although select sectors such as aviation witnessed temporary disruptions, National Stock Exchange (NSE) said in its Market Pulse report for the month of July.

The report, however, highlighted that key domestic risk going forward remains the below normal monsoon. Cumulative rainfall was 24% below normal, reducing kharif sowing by 16% from corresponding period last year and posing risks to farm produce and incomes and consequently rural demand in the coming quarters.

Sectoral landscape

IT shares came under strong buying interest in July as valuations became attractive in the wake of a sharp selloff they witnessed in the aftermath of disruptions caused by the AI boom leading to many challenging the future of IT companies.

NIFTY IT index in July surged nearly 17%, data from NSE showed. Consumer durables, Realty, Auto, Media, Pharma, Healthcare and Metal indices also rose between 2% and 11%.

On the other hand, NIFTY PSU Bank, Private Bank indices closed the month lower in range of 0.6% and 1.7%.

Broader markets also witnessed buying interest as NIFTY Midcap 100 index rose 1.8% and NIFTY Smallcap 100 index advanced 2.7%.

NIFTY50 gainers and losers

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The contract will run from July 2026 to December 2031, with an option to extend it for an additional five years.

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Tata Consultancy Services, Tech Mahindra, Bajaj Auto, Eternal, Infosys, Eicher, Titan and Wipro also rose between 9% and 20%.

On the flip side, Dr Reddy's Labs, Axis Bank, Trent, Adani Ports, Bharat Electronics, HDFC Bank, HDFC Life Insurance, Tata Motors PV and Coal India fell between 5% and 17%.

Going ahead July inflation print due mid-August should capture the crude collapse and the FPI re-entry has room to compound against underweights built through ₹3.55 lakh crore of year-to-date selling, Dasani said.