Indian markets have entered the month of July with renewed optimism and new energy. The broader market is trading in the green in the first week of July.

Last week, we talked about niftyperformance when its PE falls below 20 times. When the PE drops below 20x, the average 1-year forward return is 15.2%. Currently, we are trading at 19.9x. This is indicating an attractive level for the market participants to choose good quality stocks to generate high returns.

Today we will look at why the market is likely to remain optimistic in July despite all the macro headwinds.

The Nifty 50 index has fallen 9.65% in the last three months i.e. between April and June. This fall is the tenth time since 2002 that the benchmark has fallen for three consecutive months.

The interesting data point from these declines is that in all nine previous events the market bounced back and gave positive returns in the following month.

The average one-month return after the last nine such falls has been 6.4%. The last three consecutive monthly declines occurred during the Covid outbreak. The market fell in all the three months from January-March 2020. Nifty bounced back in April 2020 with the highest gain of 14.7%.

This makes a strong case for an optimistic end to the month of July. Another historical data point that strengthens the case is that July has been a favorable month for the market. From 2002 to 2021, July has only ended on a positive note 75% of the time since December.

Source: Stockcharts

As previously mentioned,
200-DMA Trend And Google Finding patterns indicate that there is an extreme level of fear in the market. But as history shows, periods of fear have always been followed by above-average returns.

Fundamental, seasonal, technical and behavioral aspects all indicate a positive end for the month of July. We can just see a shower of happiness this monsoon.

week’s expectations

The upcoming week is going to be very crucial as many important events are about to release. Markets globally will be majorly affected by inflation numbers from the United States, which has shown no signs of slowing down. In addition, the U.S. manufacturer price Global markets will be watching the index (PPI) and jobless claims. Back home, the Indian inflation figures will be the major headliners.

Retail inflation eased to 7.04% in May, compared to 7.79% in April, whether the downward trend continues or not is something that is eagerly awaited. Apart from macro data, the quarterly results will impact the market sentiment. D-Street would be interested to hear management’s comments regarding future earnings growth trajectory. Amidst many important events to come, investors are advised to remain cautious and be prudent with their investment choices. Nifty 50 ended the week at 16,220.6 with a gain of 2.97%.

Technical Outlook

Nifty ended the week with gains near the day’s high. From an immediate term perspective, it is likely to face stiff resistance near the 16,200 level. If it sustains above this, the next hurdle could be near the 16,500 level. On the downside, 16,000 will act as a solid support.