India’s benchmarks rose more than 1% for a second day on Friday, with the Sensex and 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 consecutive month to control runaway inflation. However, optimism that the pace of tightening may slow going forward boosted sentiment. The Fed maintained its strong commitment to bringing inflation down and said further action would depend on the data.
The Sensex closed at 57,570, up 712.46, or 1.25%, while the Nifty gained 229 points, or 1.4%, to settle at 17,158. Both indices are currently at their highest level since May 2. The Nifty rose 8.7% in July – the most since November 2020, when it rose 11.4%. On the other hand, the Sensex ended the month with an 8.6% gain – the most since August 2021, when it jumped 9.44%.
The gains come after a sharp decline in the previous three months amid strong foreign inflows.
Recovering foreign portfolio investor (REIT) inflows, easing commodity prices, attractive valuations and hopes that the Federal Reserve might ease interest rate hikes supported gains in July.
On Friday, REITs bought shares worth Rs 1,046 crore, taking their total monthly purchase to Rs 6,295 crore – their first net monthly inflow since September 2021. Between October 2021 and June 2021, they withdrew more than 2.54 trillion rupees.
After three months of continuous decline, the valuations of many quality stocks have become attractive, experts said. The easing of crude prices has brought some comfort on the inflation front. Brent crude was down 11.5% from its price in the first week of July and was trading at $107.4 a barrel.
“Investors spent six months worrying about the onset of recession. And India’s first quarter results proved that this is true neither for domestic Indian companies nor for export-oriented Indian companies. Both domestic and foreign investors realized that recession fears were unfounded in the Indian context. And we’ve seen big buys of high-quality stocks,” said Saurabh Mukherjea, founder of Marcellus Investments.
Meanwhile, US gross domestic product (GDP) data bolstered the argument that the Federal Reserve may not be opting for hikes as drastic as expected. US GDP fell 0.9% on an annualized basis for the April-June quarter after falling 1.6% in the previous quarter, according to a report from the US Commerce Department.
“With major events behind us, the focus would be on earnings and upcoming high frequency data such as auto sales, PMI numbers and GST collection numbers for indices. We reiterate our positive view and suggest continuing with the ‘buy on the dip’ approach,” said Ajit Mishra, VP Research, Religare Broking.
Market breadth was positive, with 2,100 stocks up and 1,227 down. Four-fifths of Sensex shares gained. Reliance Industries rose 2.1% and was the biggest contributor to Sensex’s gains.