STOCK MARKET BIG PICTURE IN JULY 2026

STOCK MARKET BIG PICTURE IN JULY 2026

Markets were in the positive in July 2026, with positive traction across large caps, mid-caps and small caps. Sectoral preferences shifted to the consumer-facing side.

Let us start with generic indices. July 2026 saw a broad-based recovery across the market. For July; Nifty 50 gained (3.02%), Nifty Mid-Cap 100 (1.94%), Nifty Small Cap 100 (2.68%), and Nifty Micro Cap (0.24%). A 50:25:25 Multicap yielded 2.00% in July 2026.

Sectoral indices showed interesting trends in July 2026. Sectoral stars for July were IT (17.1%), Consumer Durables (10.2%), Auto (9.0%), and Realty (9.0%). The losers were Construction (-5.9%), Capital Goods (4.0%), and HFCs (-3.3%). Undertone was positive.

Strategy indices in July 2026 tilted on the positive side. Strategies that showed stellar performance were Growth, Low Volatility, Equal-Weight, and Quality. The one strategy that actually lagged in July was Momentum.

What about Thematic Indices in July 2026? Star themes for July in terms of returns were; Digital & Internet, SFBs & MFIs, and Transport & Logistics. Themes that lagged were; Capital Markets, Core Housing, and Tourism.

Broadly, two themes were prominent in July in terms of sectoral preferences. Firstly, the anti-AI trade globally appears to have benefited Indian technology stocks. Secondly, the investors are still seeking refuge in Indian consumer stocks, offering structural growth.

HOW SECTORAL INDICES FARED ON RETURNS IN LAST 1 YEAR?

The table captures the returns on 25 key sectors with ranking on 1-year returns.

Data Source: NSE Indices

There are interesting takeaways from sectoral returns analysis

The last one year has been a year of mixed performance with 15 out of 25 key sectors giving positive returns and 10 sectors giving negative returns. While Metals, Telecom, NBFCs, PSU Banks and Auto were best performers; Cement, IT, and FMCG lagged.

If we take a longer-term 5-year view; the best performers based on CAGR returns were PSU Banks, Capital Goods, and Autos. On the downside; IT, Housing Finance, Cement, Insurance, Chemicals, FMCG, and Private Banks gave single-digit CAGR over 5 years.

The shorter-term theme has shifted towards domestic and defensive plays. While the longer-term theme also veers towards the consumer side, there are sectors like power and capital goods; which have shown signs of a structural revival in capex investment.

Let us now take a look at the risk aspect of sectoral indices.

HOW SECTORAL INDICES FARED ON RISK IN LAST 1 YEAR?

Returns are one side of the coin. Risk is the other side of the coin for investors.

Data Source: NSE Indices

The above table is ranked on 1-year volatility (standard deviation of returns) starting with the most volatile sectors to the least volatile sectors.

What about volatility / return connection? Realty and Construction have not justified the higher volatility in prices; but NBFCs, PSU Banks and metals have justified the higher volatility risk in last 1 year, through commensurately higher returns.

Over the last one year, 16 out of 25 sectors were aggressive sectors with Beta ≥ 1. Pharma, Healthcare, and Power have generated best defensive risk-adjusted returns, while the rest of the defensive plays have generated below-average returns.

R-Squared shows how much sector returns are explained by Nifty movements. Lower the R-Squared, better for diversification. Best diversification Plays were Healthcare and IT. Volatility in IT has reduced sharply, as has its ability to offer portfolio diversification.

Let us finally turn to how valuations of various sectors stack up?

SECTORAL INDICES AND THE VALUATION PLAY IN LAST 1 YEAR

Here, we look at sectoral valuations ranked on P/E ratios as of July 2026.

Data Source: NSE Indices

Here are key takeaways from the valuation parameters.

There is not necessarily a connect between valuation ratios and returns. Consumer Durables rallied in July despite high valuations. Chemicals, Capital Goods, and Healthcare have seen valuations getting stiffer in the last few months. P/E is not applicable to retail and consumer services due to losses at the sectoral level.

If you look at average P/E ratios with respect to last 10-year averages, Private Banks and IT are giving the maximum comfort, although it may not be indicative of attractiveness of the sector. PSU banks is the only sector still available at single-digit P/E ratio.

Despite the sharp bounce in July, the IT sector remains very attractive in terms of dividend yield at 2.60%. However, generous dividend yields have been matched by a fall in P/E discounting of IT sector. Oil & gas, Metals, and Power are other sectors with high dividend yields, while dividend yield of PSU banks has tapered amidst the rally.

For the umpteenth month in a row; Healthcare is checking multiple boxes. Returns are attractive, volatility is low and low R-Squared makes it best suited to diversifying the portfolio. However, valuations are gradually getting richer for Healthcare!