FIIs push 700-point Nifty rally in July; will the momentum sustain in August?

FIIs have pulled off a 700-point rally in the Nifty since the 3rd of this month at the start of the earnings season for the first quarter, according to analysts. ‘’Nifty has rallied around 5 per cent in the last one month mainly on FII buying and sustaining strong inflows into domestic mutual funds. Institutional support is likely to continue,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

FII inflows between April to July were close to ₹80,500 crore, while DIIs sold Rs.4,500 crore in this period. The DII selling comes on the back of mutual fund SIP inflows of Rs.43,211 crore in the April-June quarter, at an average inflow of ₹14,400 crore a month. 

‘’Many mutual fund schemes have stopped lumpsum investments and are currently advocating investments through the SIP route. More clarity could emerge on the individual stock valuations and fresh investment opportunities post the current results season,” said Gopal Kavalireddi, Vice President – Research at FYERS.

Also Read: Nifty rallies 15% in FY24 so far, on track to hit 20,000-mark led by Q1 earnings, FII momentum

What happened in last 2 sessions?

However, in the last two sessions, FIIs turned net sellers and domestic institutional investors (DIIs) were the net buyers as equity benchmarks recorded losses in both sessions on weak global cues. 

On Thursday, FIIs sold a net total of ₹3,979.44 crore in the purchase of shares, while domestic institutional investors (DIIs) bought shares for a net total of ₹2,528.15 crore. Sensex and Nifty ended with losses on July 27 as trading was volatile on the last day of the Nifty’s July series futures and options (F&O) contracts. 

On Friday, FIIs were the net sellers again of securities worth of ₹1,023.91 crore, while DIIs bought securities for a net total of ₹1,634.37 crore. Sensex closed at 66,160.20, down 107 points, or 0.16 per cent, while Nifty50 closed at 19,646.05, down 14 points, or 0.07 per cent. For the week, Sensex slipped 0.8 per cent while the Nifty declined 0.5 per cent.

Hence, in the last two sessions, FIIs offloaded ₹5,003.35 crore in Indian stocks, while DIIs bought a total of ₹4,162.52 crore in equities. Due to July F&O expiry and weak guidance from the IT sector, markets have faced a sudden selling pressure, snapping its winning streak recorded earlier this week.

However, FIIs purchased shares worth a net of ₹14,623.18 crore for the month up to July 28, while DIIs sold shares worth a net of ₹3,672.40 crore. The consistent buying pushed Sensex and Nifty to fresh record highs this month, with the Nifty index just shy of scoring the 20,000-mark last week.

Will the rally sustain?

Apart from the five per cent rally month-till date, analysts have also noted that the index has rallied by 15 per cent since the beginning of current fiscal (April 1, 2023).

‘’On the backdrop of consistent FIIs buying, sound macros and micros, and surplus monsoon so far, Nifty has rallied by 15 per cent since 1st April’23. Nifty should most likely cross the 20k mark given the ongoing momentum and clear strength visible in the market,” Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services had said last week.

Even though equity benchmarks faltered in the week’s last two sessions, the mid and smallcap indices bucked the trend. On Friday, markets ended the week with mid and smallcaps outperforming the benchmark index. The BSE Midcap index closed 0.55 per cent higher at 30,159.82 after hitting its record high of 30,178.22. The Smallcap index rose 0.49 per cent to end at 34,548.46 after hitting its fresh record high of 34,577.99.

‘’Even with the Nifty50 index rising by 10.5 per cent return over the last three months, investors poured money into mid and small-cap stocks and funds. The Nifty mid-cap Index soared 18.6 per cent, with the Nifty small-cap index delivering a much higher return of 21.3 per cent over the same period,” said Kavalireddi of FYERS.

‘’While pockets of underperformance in certain sectors are evident, on an overall basis, the Indian indices are pushing the valuations on the higher side,” he added. 

Analysts stay optimistic about resilience in markets and say that the recent dip indicates a healthy correction citing the pace of decline and intermediate buying across sectors. 

‘’Nifty has almost reached closer to the upper band of 19,300-19,500 support zone, offering opportunity for fresh positional longs in the index. However, we feel it would be prudent to use options spreads to start with and wait for a reversal signal,” said Ajit Mishra, SVP – Technical Research, Religare Broking.

Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.

Updated: 29 Jul 2023, 05:50 AM IST