Sensex, Nifty gain 5% in July, the biggest gain in 11 months

Markets were extremely oversold with FIIs selling nearly $28.70 billion so far this year. This selling spree reduced in July to $146 million from more than $6.34 billion they sold in June

India's benchmark indices Sensex and Nifty surged nearly 5 percent each in July, their biggest gain in 11 months, led by a spike in banking, auto and consumer sectors with the hope of global central banks going slow on rate hikes. Softening of commodity prices also helped improve the investor sentiment.

The Sensex and Nifty advanced 5.4 percent and 4.5 percent in July, its maximum gains since last August. This was also the first time in four month that both the indices turned positive.

The US Federal Reserve raised interest rates by 75 basis points against an expected hike of 100 bps on Wednesday. Further to the announcement, the American central bank gave the future interest rate guidance in the range of 3 percent to 3.5 percent. Analysts said the Fed, through its commentary, has made markets believe that this interest rate upcycle may not last long contrary to what was anticipated. This may have positive implications on equities globally, they feel.

"Expected slow on rate hikes due to the impact of monetary tightening so far on growth seen across the world and softening commodity prices. Also the risks of a durable recession are reduced. This led to traders bottom fishing which, in turn, forced some shorts to cover their positions," said Deepak Jasani, Head of Retail Research at HDFC Securities.

All the sectoral indices were up during the month except Nifty IT index and Nifty Oil & Gas index. Nifty IT dropped 1.52 percent, while Nifty Oil & Gas lost 0.65 percent.

The IT index fell due to rising concerns of supply side shortages, fall in margins, higher attrition, rising sub-contractor and travel costs, rise in interest rate in the US, and recession expectations along with geo political tension in client-centric regions, analysts said. The oil and gas sector has been under pressure with refining margins coming off sharply in the last couple of weeks and the government imposing additional duties.

"Markets have recovered strongly from the June low and sectors such auto and FMCG led the rebound. We're now seeing banking and financials adding to the momentum while the laggards like IT and energy are still struggling. Participants should stick with the sectors which are relatively stronger and use intermediate dips to add quality names instead of focusing on the underperformers," said Ajit Mishra, VP-Research at Religare Broking.

The Nifty Auto index gained 5 percent in July, Nifty Consumer Durables and Nifty FMCG indices surges 11 percent each, while Nifty MidCap and SmallCap added over 8 percent during the month. The Nifty Bank and PSU Bank jumped 8 percent and 13 percent.

Analysts said that the markets were extremely oversold with foreign investors selling nearly $28.70 billion so far this year. The selling pace of the FIIs reduced in July. The foreign institutional investors had net sold Indian stocks worth $146 million this month compared to more than $6.34 billion in June.