Too many dampeners on market sentiments still

Indian equities are expected to remain in consolidation mode amid continued uncertainty around India-US trade deal, a mixed Q1FY26 earnings season so far and intensifying FII outflows. Macro stability and healthy domestic flows remain supportive, but further upside would hinge on positive earnings surprises results and progress on the US trade deal. Key macroeconomic data to be released this week include US Q2 GDP, US Fed and Bank of Japan’s interest rate decision, US retail inflation for June and US and India’s manufacturing PMI.

A packed Q1 earnings calendar featuring key companies across sectors—such as BEL, L&T, NTPC, Asian Paints, VBL, HUL, ITC, Tata Steel, Hyundai, M&M, Maruti, and Sun Pharma—will be crucial in shaping market direction. FMCG and auto stocks are likely to remain in focus amid result announcements from major players in these segments. Additionally, markets on Monday will react to the Q1 results of Kotak Mahindra Bank, Macrotech Developers, CDSL, and others released over the weekend.

Last week, Nifty50 ended with a loss of 0.6% at 24,837, its fourth consecutive week of decline. Market sentiments were weighed down by earnings volatility and persistent FII outflows, with July witnessing over Rs 28,500 crore in net selling so far. Broader markets significantly underperformed with Nifty Midcap100 and Smallcap100 declining by 1.9% and 3.6% respectively. Sectoral performance was mixed—banking, financial services and pharma saw modest gains, while realty, IT and FMCG indices faced significant pressure.

Earnings remained the key market driver, with mixed reactions to Q1FY26 results. Private banks like HDFC and ICICI delivered moderate profit growth. However, net interest margins remained under pressure amid deposit repricing, while credit growth was modest (~9–10%). NBFCs saw mixed results—AU Small Finance Bank showed ~10% YoY PAT growth, but players like Bajaj Finance were under scrutiny due to rising asset quality concerns. IT stocks faced significant pressure after mid-tier firms, Coforge and Persistent Systems, reported weaker-than-expected quarterly results.

On the global trade front, US finalised trade deals with Japan, the Philippines, and Indonesia, capping tariffs at 15–19%, signaling a shift toward more structured trade frameworks. The US–Japan pact, seen as a template for future agreements, eased market concerns by averting steep tariffs. 

In a landmark move, the India-UK free trade agreement (FTA) was signed. The trade deal which was agreed upon in May this year, aims to enhance bilateral trade to $120 billion by 2030, effectively doubling the current trade volume between both nations. 

The US Fed policy outcome is scheduled for Wednesday, July 30. The Federal Open Market Committee (FOMC) is not expected to cut interest rates this time. Last week, the European Central Bank kept policy rates unchanged, but flagged downside risks to growth in the Eurozone.

Domestically, monsoon progress remained favourable with India receiving 143.5 mm rainfall during July 1-15, which is 11.3% more than the long period average (LPA) of 128.9 mm, taking the total seasonal rainfall to 10% above normal since the beginning of the season in June.

(The writer is Head of Research, Wealth Management, Motilal Oswal Financial Services Ltd)