A broader selloff in AI stocks across other emerging markets prompted foreign investors to shift money towards India in the final days of the month.
July lived up to its reputation of being a strong month for Indian equity benchmarks, with the Nifty gaining 2.2 per cent and the Sensex rising 2.1 per cent.
Strong June-quarter earnings, the return of foreign portfolio investors (FPIs), and a selloff in artificial intelligence (AI) stocks in other emerging markets supported Indian equities.
Key Points
- Indian equity benchmarks posted strong July gains, with the Nifty rising 2.2 per cent and the Sensex advancing 2.1 per cent.
- Foreign portfolio investors returned as net buyers, supported by global AI trade unwinding and improving domestic corporate earnings momentum.
- The Nifty IT index surged 16.8 per cent, its strongest monthly performance since July 2020, driven by technology heavyweight gains.
- HCL Technologies, Bajaj Auto, Tech Mahindra, TCS and Eternal emerged as the top-performing Nifty stocks during July.
- Analysts expect earnings momentum, geopolitical developments and the AI trade to remain key drivers of market direction ahead.
July Market Rally
Both benchmarks have ended July with gains in 19 of the past 25 years.
The Sensex and the Nifty rose in both June and July, posting their first back-to-back monthly gains of 2026.
The Sensex ended Friday's session at 78,095, up 167 points, or 0.2 per cent.
The Nifty closed at 24,384, gaining 67 points, or 0.3 per cent.
The total market capitalisation of BSE-listed firms rose by Rs 12 trillion to Rs 486 trillion.
FPIs Return to India
A broader selloff in AI stocks across other emerging markets prompted foreign investors to shift money towards India in the final days of the month.
The Nifty and the Sensex outperformed Asian peers in South Korea, Japan, Taiwan and China.
They also outperformed the S&P 500 and the Nasdaq Composite in July.
AI Trade Shift
The unwinding of the global AI trade benefited Indian information technology companies.
The Nifty IT index gained 16.8 per cent in July, recording its best monthly performance since July 2020.
It was also the best-performing sectoral index for the month.
Nifty IT Leads Gains
HCL Technologies, which rose 25.7 per cent, was the best-performing Nifty stock.
Bajaj Auto, up 18.6 per cent; Tech Mahindra, 17.6 per cent; Tata Consultancy Services, 16.4 per cent; and Eternal, 14.3 per cent, were the other top-performing Nifty stocks in July.
Foreign portfolio investors (FPIs) became net buyers of Indian equities after being sellers for the previous four months.
Their net purchases helped offset the impact of a surge in Brent crude prices amid renewed tensions in West Asia.
Brent crude rose 18.3 per cent to $87.8 per barrel.
Outlook for Markets
The geopolitical situation and the AI trade will determine the market's direction.
Bajaj Finance, which rose 8.1 per cent following quarterly results, was the best-performing Sensex stock and the biggest contributor to the index's gains.
"The sustainability of the recovery will depend largely on the ongoing earnings season, which is currently outperforming forecasts, and on a reduction in global risks.
"As the earnings season gathers pace, markets will seek confirmation that the recent improvement in earnings is broad-based rather than concentrated in a few sectors," said Vinod Nair, head of research at Geojit Investments.
Market breadth was strong on Friday, with 2,522 stocks advancing and 1,722 declining.
FPIs were net buyers of equities worth Rs 278 crore, while domestic institutional investors were net buyers worth Rs 2,260 crore.
"The index now appears well-positioned to inch towards the 24,600 level, coinciding with the previous swing high.
"A decisive breakout above this zone could open the door for a move towards the 24,800–25,000 range.
"On the downside, the 24,270 level is expected to act as immediate support," said Ajit Mishra, senior vice-president, research, at Religare Broking.
Feature Presentation: Ashish Narsale/Rediff
