Dalal Street bets on a strong July as macro risks begin to fade

Synopsis

Indian equities are poised for a positive July, building on historical trends and recent market strengths. Easing crude oil prices, a stable rupee, and reduced foreign selling are fueling optimism. Analysts anticipate the Nifty could climb 2-3% from current levels, with mid and small-cap stocks expected to lead the rally. Investors are closely watching geopolitical developments and monsoon progress for further market catalysts.

Mumbai: July's reputation as one of the strongest months for Dalal Street has seasonal traders expecting another positive month for Indian equities, with easing crude oil prices, a stabilising rupee, declining foreign selling in equities, and receding geopolitical tensions adding to the optimism.

Over the past 10 years, both the Nifty and Nifty 500 have ended July in positive territory eight times, delivering average gains of 3.1% and 3.2%, respectively, according to data from Motilal Oswal Financial Services. The Nifty Midcap 100 and Nifty Smallcap 250 have also risen in eight of the past 10 occasions, according to Bloomberg data.

"We expect July to remain positive following a dull May and June," said Chandan Taparia, head of technical and derivatives research at Motilal Oswal Financial Services. "If seasonal trends hold, the benchmark Nifty 50 could add another 500-700 points, or around 2-3%, from current levels."

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The Nifty, which ended at 23,865.75 on Tuesday, posted 1.35% gains in June. The Nifty Midcap 100 gained 0.1%, while the Nifty Smallcap 250 advanced 4.3%.

While the Nifty has been trading in the 23,000-24,300 range in recent weeks, a retest of the upper end of the band is possible in July, according to Sriram Velayudhan, senior vice-president at IIFL Capital Services.

"Historical price returns evidence suggests Indian equities have fared well in July," said Velayudhan. "Factors like correction in crude, easing geopolitical tensions and improvement in monsoon can be the catalysts driving equities this month." Brent crude futures fell to about $74 a barrel on Tuesday from around $95 at the start of the month, marking their third straight month of decline (CHK PLS). Investors are watching the outcome of the US-Iran peace talks in Doha amid the ongoing interim ceasefire.

"With both the rupee and crude oil prices now stabilising, we believe any near-term declines are likely to be bought, and this could pave the way for the Nifty to move towards the 24,500-24,750 zone, with strong support around 23,500," said Taparia.

Taparia said he expects mid- and small-cap stocks to continue outperforming large caps, which remain under pressure from persistent foreign institutional selling and weakness in the IT sector.

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