July’s Got the Seasonal Charm for Stock Markets, And F&O Rollovers Are Playing Along

July has a bit of a soft spot for Indian stock markets, at least that is what historical data suggests. Over the past 10 years, the Nifty has closed July on a high 90% of the time, with average gains of 3.6%. Building on the bullishness, the rollover of positions to the July futures and options (F&O) series paint a similar rosy picture.

Even though foreign institutional investors (FIIs) had turned jittery in the June series, they have returned with mojo in the July F&O series. FIIs have significantly covered their shorts when rolling over positions to the July F&O series, which according to Nuvama Alternative and Quantitative Research, hints towards reduced bearishness.

“Their net shorts stood at 35,000 contracts as against 78,000 short contracts at the start of June series,” Nuvama Alternative & Quantitative Research wrote in a note.

The strength in FII sentiment may have been powered by the relentless backing by domestic institutional investors in the June F&O series, one that was marked by volatility.

While FIIs largely stayed on the sidelines, DIIs maintained strong buying interest, aided by robust and consistent SIP-led domestic inflows that continue to offer ample liquidity for deployment. FIIs were net buyers to the tune of $0.3-bn, while DIIs pumped in $8.1-bn which kept the market resilient even on the face of global uncertainties.

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In addition, the earnings season wrapped up on a better-than-feared note, setting the stage for July series to start positioning ahead of the next earnings quarter, Nuvama said. On the heels of the strong DII support, the Nifty ended the June series 2.9% higher.

Moving on, for the July F&O series, Nifty futures saw rollovers at 80%, slightly higher than the three-month average of 78%. Market-wide rollovers came in at 89%, broadly aligned with the three-month average, while stock futures rollovers stood at 91%, matching the trend seen in the previous three series. Overall, rollover data suggests a stable-to-positive undertone heading into the new series.

Looking ahead, with the Nifty trading near its all-time highs, Abhilash Pagaria, Head of Nuvama Alt & Quant Research, believes that while some volatility is likely, the underlying bullish momentum is expected to persist.

“We believe Nifty could head towards the 26,000 mark, however, it would be prudent to regularly book profits on long positions,” Pagaria said. Consequently, Pagaria believes any signs of weakness should be used as an opportunity to initiate shorts, particularly in the banking index, which appears more vulnerable in his view.

In addition, he also rolled out a word of caution, suggesting that the recent surge in block deals and promoter selling may be indicative of some froth building in select names.

Despite that though, Pagaria also touted the resilience seen in the market in response to external noise, from geopolitical tensions to "Presidential tweets," as such events are proving to have only short-lived effects. “Momentum is shifting rapidly, and positioning needs to be equally agile,” he suggested.

Despite the early signs of optimism across the market, the July F&O series, which kicked off today, promises to be anything but quiet. From Trump’s looming July 9 tariff deadline to the onset of the Q1 earnings season, investors will have no shortage of triggers to track and respond to.

With so many curveballs lined up, it will be interesting to see whether July works its usual charm or if the Nifty buckles under pressure, after all, it’s never managed to post gains for five F&O series in a row.