July Loses Seasonal Charm as Nifty Heads for Second Worst Monthly Show in 10 Years

The month of July has long been a sweet spot for Indian equities, delivering positive returns in 9 of the past 10 years. But this year, the tide has turned. The Nifty 50 is now limping toward the end of the month, poised to record its worst July performance since 2019, the lone red mark in an otherwise decade-long green streak. A cocktail of weak corporate earnings, global market jitters, persistent FII outflows, a delayed India-US trade deal, and a sharp correction in IT and banking stocks has clouded the once-sunny July sentiment.

For the last five years, July has delivered average returns of around 4.7%, making it one of the most seasonally strong months for the market. This time however, persisting global uncertainties and a tough macro environment kept sentiment in check during the month. The headline Nifty 50 has already shed 2.9% in the month so far, looking poised to not just end July in the red, but also mark an end to a four-month winning streak.

After three months of steady inflows, foreign institutional investors made a decisive U-turn in July, pulling out ₹20,262 crore from Indian equities as of July 25. The reversal came amid a clouded earnings season and growing macro uncertainty.

Q1 Earnings Season Dampened Mood

Even with expectations set low for India Inc’s Q1, the results still managed to underwhelm, with muted earnings and cautious management commentaries. “The market’s attention during the Q1 FY26 earnings season was squarely on management commentary,” said Shrikant Chouhan, Head of Equity Research at Kotak Securities. “While headline earnings met estimates, the downbeat guidance from several companies across sectors dented sentiment. FPI flows are likely to remain volatile.”

The Q1 earnings season thus far has also not seen any major positive surprises, evoking widespread caution across the market, prompting investors to take on a stock-specific approach. That caution also played out in FII’s trading strategy. FIIs sold on 14 of the 19 sessions this month, often taking advantage of every market rise to book profits. Even on the five days they turned net buyers, the volumes were marginal. Sustained domestic institutional and retail buying helped absorb the selling pressure, providing the exit liquidity foreign investors needed.

Interestingly, the FII retreat wasn’t across the board. While they exited heavily from the secondary market, they remained active buyers in the primary market. “That divergence has been a defining theme of 2025 so far. Lower valuations in IPOs compared to richer valuations in the secondary market explain this paradox,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Sector-wise, foreign investors trimmed their exposure to IT stocks through July, while selectively buying into banking and financial names. That strategy has found some early validation as major banks like ICICI Bank and HDFC Bank have reported steady Q2 numbers, while IT majors have disappointed.

Uncertainty Hanging Over India-US Trade Deal

With the August 1 deadline coming close, investors are getting jittery over the delays in the India-US trade deal.  “While trade deals with Japan and EU, thought to be difficult initially, have happened, the much expected India-US trade deal is even now hanging fire. This has impacted market sentiments,” Vijayakumar said.

In the absence of other positive triggers, Siddhartha Khemka, Head of Research at Motilal Oswal Financial Services also believes that the market will remain stuck in a consolidation mode amid continued uncertainty around India-US trade deal as investors will closely track developments on this front.

Can Nifty See August Times Ahead?

With a widespread ‘sell-on-rise’ sentiment blanketing the market, analysts remain cautious over the Nifty staging a sharp rebound in August. As for the current juncture, the benchmark Nifty has slipped below key support level of 24,900, also its 50-day exponential moving average, which according to Rupak De, Senior Technical Analyst at LKP Securities, suggests a meaningful weakening of the ongoing trend. 

“The current setup appears visibly weak and suggests the possibility of a deeper correction,” De believes. On that account, he believes that if the Nifty fails to reclaim levels above 24,900 in the next session or two, bulls could face significant short-term challenges while heading into August.

“On the downside, immediate support is seen at 24,700, followed by 24,500. On the upside, resistance is now placed around 25,000," De added.