Bulls and Bears : Market continues its upward momentum; earnings and flows anchor optimism by Motilal Oswal Financial Services Ltd
Strategy
* Market rallies for the second consecutive month: The Nifty managed to close above 24k after five months, ending 2.2% up MoM at 24,384 in Jul’26. The index has closed higher for the second successive month. Notably, the index was extremely volatile and swung around 925 points before closing 518 points higher. In CY26TD, the Nifty is down 6.7%. Over the last 12 months, largecaps have been down 2%, underperforming midcaps (+10% YoY) and smallcaps (+8% YoY). Over the last five years, midcaps (CAGR: 17.7%) have notably outperformed largecaps (CAGR: 9.1%) by 71%, while smallcaps (CAGR: 12.9%) have markedly outperformed largecaps by 29%
* FIIs clock inflows in Jul’26, while DII inflows at lowest level since May’25: In Jul’26, FIIs recorded inflows of USD2.5b after four consecutive months of outflows. FII equity outflows stood at USD26.5b in CY26YTD. DII inflows slowed in Jul’26 to USD3.7b, the lowest level since May’25. DII equity inflows stood at USD53.7b in CY26YTD.
* Breadth favorable in Jul’26: Among sectors, Technology (+17%), Media (+9%), Real Estate (+9%), Automobiles (+9%), and Healthcare (+5%) were the top gainers MoM, while Capital Goods (-5%), Power (-5%), Oil & Gas (-3%), Telecom (-2%), and PSU Banks (-1%) were the key laggards. The breadth was favorable in Jul’26, with 32 Nifty stocks closing higher. HCL Tech (+26%), Bajaj Auto (+19%), Tech Mahindra (+18%), TCS (+16%), and Eternal (+14%) were the top gainers, while Dr Reddy’s (-15%), Axis Bank (-9%), Trent (-8%), Adani Ports (-6%), and HDFC Bank (-6%) were the key laggards.
* India among the positive performers in Jul’26: Among the key global markets, Indonesia (+11%), the UK (+4%), Brazil (+3%), Germany (+3%), and India (+2%) ended higher MoM. However, Korea (-22%), Japan (-8%), Taiwan (-7%), China (-6%), and MSCI EM (-3%) ended lower MoM in Jul’26. During the last 12 months, the MSCI India Index (-7%) has underperformed the MSCI EM Index (+34%) in USD terms. Over the last 10 years, the MSCI India Index outperformed the MSCI EM Index by 6%.
* Earnings review 1QFY27 – OMCs temper Financials and Metal strength: As of 31st Jul’26, 211/39 companies within the MOFSL Universe/Nifty have announced their 1QFY27 results. The earnings of the aforesaid 211 MOFSL Universe companies inched up 2% YoY (vs. our est. of a 10% YoY dip), primarily weighed down by OMCs amid high crude prices. Barring OMCs, earnings growth for the MOFSL Universe remained healthy at 17% YoY (vs. our est. of +13% YoY). Earnings of the 39 Nifty companies that have declared results so far have grown 11% YoY (vs. our est. of +7% YoY).
* Valuation – two-thirds of the sectors trade at a premium to their historical averages: The Nifty is trading at a 12-month forward P/E ratio of 18.9x, below its LPA of 21x (at a 10% discount). Further, its P/B of 2.8x represents a 4% discount to its historical average of 2.9x. The 12-month trailing P/E for the Nifty, at 21.8x, is below its LPA of 23.2x (at a 6% discount). At 3.1x, the 12-month trailing P/B ratio for the Nifty is near its historical average of 3.2x (at a 3% discount). Notably, two-thirds of the sectors trade at a discount to their averages. Capital Goods, PSU Banks, Metals, Oil & Gas, Healthcare, and Utilities trade at a premium to their long-period average (LPA) valuations, while Private Banks, Consumer, Technology, Retail, and Real Estate trade at a discount to their LPA.
* View: Nearly two years of range-bound performance in Indian equities and a strong rally in global markets have widened the performance gap to near-historic levels. India's underperformance, following its status as one of the world's best-performing equity markets between 2020 and 2024, has been difficult to reconcile with its strong underlying fundamentals. The 1QFY27 earnings have been better than our estimates, with the intensity of earnings cuts moderating. Further, the beat-miss ratio for the MOFSL Universe remains favorable. The MOFSL model portfolio broadly reflects our preference for growth visibility, structural domestic growth plays, and select global value names. We firmly believe that this is a bottom-up market, despite India experiencing both time and price corrections relative to EM peers.
* Top Nifty-50 Ideas: Bharti Airtel, SBI, ICICI Bank, M&M, Titan, Eternal, Shriram Finance, Bajaj Finance, and Interglobe Aviation.
*Top non-Nifty-50 Ideas: TVS Motors, Radico Khaitan, Indian Hotels, RBL Bank, Dixon Tech, Coforge, Kirloskar Oil Engines, Arvind, TBO TEK, Delhivery, HDFC AMC, Meesho, and BSE.
FIIs clock inflows in Jul’26, while DII inflows at lowest level since May’25
India’s share of global market cap inches up to 3.1% in Jul’26
Automobiles: Improved earnings visibility to drive further re-rating in the sector
* The Automobile sector had seen a re-rating last year after GST rate cuts. However, it eventually peaked out at around 29x in Feb’26, with the onset of the West Asia crisis, as concerns around demand sustainability and margin pressure emerged.
* The sector is currently trading at 26.7x (12% premium to its 10-year avg. of 23.8x).
* The current re-rating trend in the sector has been a function of improved earnings visibility, and we believe it has a lot of headroom to achieve its previous peak if earnings growth improves on expected lines in subsequent quarters.
* Demand has remained healthy even in FY27 across all segments. In fact, July wholesales across segments were well ahead of estimates, driven by healthy demand, lean inventory, normalization of supply chain hiccups and capacity ramp-up for certain key OEMs.
* Within sectors, PVs are now outperforming our prior expectations. Given the strong tractor momentum in the first four months, there could be some upside risk to our full-year estimates for the industry. CVs are also seeing a healthier momentum in the first four months relative to our expectations.
* While the impact of El Nino is one of the critical monitorable items for FY27, the monsoon progress so far has supported positive rural sentiment, which is already reflected in healthy tractor demand.
* We now expect 2Ws to post 6%/8% growth, PVs to record 13%/7% growth, CVs to register 6%/8% growth, and tractors to clock 5%/5% growth over FY27- FY28E.
* The surge in input costs is hurting auto sector earnings in 1Q. However, with the resolution in the West Asia crisis expected sooner, commodity prices have started cooling off, which, along with the price hikes by OEMs across segments, will help to normalize margins in subsequent quarters for the sector.
Nifty closes above 24k; adds 518 points (+2.2%) MoM in Jul’26
* The Nifty managed to close above 24k after five months, ending +2.2% MoM at 24,384 in Jul’26. The index has closed higher forthe second successive month. Notably, the index was extremely volatile and swung around 925 points before closing 518 points higher. TheNifty is down 6.7% in CY26YTD.
* Among sectors, Technology (+17%), Media (+9%), Real Estate (+9%), Automobiles (+9%), and Healthcare (+5%) were the top gainers MoM, while Capital Goods (-5%), Power (-5%), Oil & Gas (-3%), Telecom (-2%), and PSU Banks (-1%) were the key laggards.
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