NIFTY50 snaps 5-month rally, falls 2.9% in July; what's in store for August?

Indian equity benchmarks snapped their five-month winning streak in July as the SENSEX dropped 2.9% and NIFTY50 index plunged 2.93%. Monthly loss in July came for the first time in six months as slew of internal and external headwinds capped gains of Indian markets.

Subdued earnings

The Q1 earnings season started on a muted note for India Inc. as major IT and FMCG players announced a drop in profit and followed it with weak commentary for the next few quarters.

TCS, Infosys, Wipro and other IT players have guided for weak demand scenario in the US. In addition, Avenue Supermarts, Nestle, Colgate, Hindustan Unilever (HUL) and Tata Consumer witnessed contraction in operating margins during the quarter.

In banking space, except ICICI Bank, other key banks like HDFC Bank, Axis Bank and Kotak Mahindra Bank reported drop in margins and slight deterioration in the asset quality.

Trade deal anxiety

Anxiety over India-US trade deal is still a looming factor which kept the investors at bay for a long period of time. The recent announcement of 25% tariff and a penalty on Indian goods has added more worries to pending talks between the US and India.

However, investors and analysts have now digested the news of 25% tariffs and its impact on the various sectors. Experts believe, the stalemate between India and the US could produce a mutually beneficial output in coming weeks.

FII sell off

Foreign Institutional Investors have resumed as net sellers for the month of July after buying for three consecutive months in April, May and June. According to the NSDL FPI investment data, foreign investors have sold Indian equities worth ₹17,578 crore as compared to ₹4,223 crore, ₹19,680 crore and ₹14590 crore in April, May and June respectively. The renewed FII selling has led to nearly 3% fall in the benchmark indices in July as compared to 16% gains in April to June period.

What is in store for August?

In the historical context, August has remained a positive month for 7 out 10 times in the past 10 years.

Here’s how NIFTY50 has fared in the last 10 years:

Although, past returns are not an indication of future movement. The data merely tells the probability of how NIFTY50 fared in August. The domestic cues for Indian markets remain neutral with key overhangs getting removed in July.

In the first week of August, markets will focus on key macro-economic indicators like manufacturing PMI data, loan and deposit growth data on August 1. The monetary policy outcome on interest rates will also determine future direction of markets. Apart from that, the earnings season will end in the mid-August. In addition, the stalemate on tariffs is expected to continue in August and that will also determine the direction of the markets.