The big bounce-back: Nifty logs biggest monthly gains since November 2020

FPIs buy shares worth Rs 6,300 crore, first net inflow since Sept 2021

India’s benchmark indices rose more than a per cent for a second day on Friday, with the Sensex and the Nifty capping their biggest monthly gains since August 2021 and November 2020, respectively.

The back-to-back gains came even as the US Fed raised interest rates by 75 basis points for a second straight month to control runaway inflation. However, optimism that the pace of tightening may slow down going ahead has buoyed sentiment. The Fed has maintained its strong commitment to bringing down inflation and has said further action will depend on data.

The Sensex closed at 57,570, up 712.46, or 1.25 per cent, while the Nifty gained 229 points, or 1.4 per cent, to settle at 17,158. Both indices are currently at their highest level since May 2. The Nifty has rallied 8.7 per cent in July — the most since November 2020, when it had risen 11.4 per cent. On the other hand, the Sensex finished the month with 8.6 per cent gain — the most since August 2021, when it had surged 9.44 per cent.

The gains come after a sharp slide in the preceding three months amid sustained foreign outflows.

The revival in foreign portfolio investor (FPI) flows, easing of commodity prices, attractive valuations, and hopes that the Federal Reserve may go soft on its interest rate hikes have underpinned the gains in July.

FPIs on Friday bought shares worth Rs 1,046 crore, taking their monthly buying tally to Rs 6,295 crore — their first net monthly inflow since September 2021. Between October 2021 and June 2021, they yanked out over Rs 2.54 trillion

After three months of continuous decline, valuations of many quality stocks turned attractive, said experts. The ease in crude prices gave some comfort on the inflation front. Brent crude declined 11.5 per cent from its price in the first week of July and was trading at $107.4 a barrel.

“Investors spent six months fretting that recession was coming. And the first-quarter results in India have proved that it is not true either for domestic or export-centric Indian companies. Both domestic and foreign investors realised that recession concern is unfounded in the Indian context. And we have seen heavy buying in high-quality stocks,” said Saurabh Mukherjea, founder of Marcellus Investments.

Meanwhile, the US gross domestic product (GDP) data strengthened the argument that the Federal Reserve may not go for hikes as forcefully as speculated. The US GDP fell to 0.9 per cent on an annualised basis for the April-June quarter after a drop of 1.6 per cent in the previous quarter, a report by the US Commerce Department showed.

“With major events behind us, the focus would be on earnings and upcoming high-frequency data like auto sales, PMI numbers, and GST collection figures for cues. We reiterate our positive view and suggest continuing with the ‘buy on dips’ approach," said Ajit Mishra, VP of research, Religare Broking.

The market breadth was positive, with 2,100 stocks advancing and 1,227 declining.  Four-fifths of the Sensex stocks gained. Reliance Industries rose 2.1 per cent and contributed the most to the Sensex gains.