The Indian benchmark equity indices Sensex and Nifty posted healthy gains of over 7 percent in the month of July backed by infusion of access global liquidity into emerging markets, better than expected corporate earnings and a rally in IT and consumer stocks.

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Analysts expect the rally in the markets to continue going ahead on hopes of more liquidity easing by the Reserve Bank of India (RBI), expectations of the additional stimulus package from the government and a recovery in the rural economy on account of favorable monsoon.

“The rally was led by a surge in IT stocks that rose on better than expected quarterly earnings. Global liquidity and foreign fund inflows also supported markets. The foreign investors are in a risk-on mode which suggests the upside to continue,” said Sudip Bandyopadhyay, Group Chairman, Inditrade Capital.

However, Bandyopadhyay expects markets have entered into a healthy consolidation phase with Nifty trading in the range of 11,000-11,200 levels. “This consolidation is necessary which will pave the way or further gains,” he said.

The foreign institutional investors (FIIs) have infused around Rs 3,448.83 crore in the domestic equity markets in the month of July, as per data available on exchanges. (Data as on July 30)

Technically, the July series was majorly dominated by the bulls as index continued to make Higher Highs – Higher Lows throughout the series.

“As a result, Nifty concluded the July series a tad above 11,100 mark, with gains of 7.90% over its June expiry close. Nifty posted first consecutive F&O series gains of 2020 on back of sharp rally in IT counters and index heavyweight Reliance. The up move was supported by long positions; but most of these positions did not get rolled to August series as open interest decreased marginally (2.08%) on series-on-series basis,” brokerage Motilal Oswal said in a note.

India VIX continued its southward journey for 4th consecutive month as it fell by around 17% to conclude the July series at 24.73 levels. Lower volatility also helped the index to make a higher base as India VIX remained in a broader range of 20 to 31 in the July series.

Among sectors, the IT index was the best performing index in July, rising over 20 percent on the back of strong June quarter earnings by the major IT firms. The Nifty IT index surged as much as 22 percent this month.

Except for one constituent in the index, all others gave positive returns in July. Heavyweights Infosys, Wipro, HCL Tech, and Tech Mahindra were up between 24 percent and 31 percent. TCS also gained 8 percent this month.

“The IT sector will be the key focus going ahead as we believe the pandemic has given a better opportunity and a way ahead for the digital story towards growth. It’s the second wave of growth for Indian IT companies which have focused on better products,” Bandyopadhyay said.

He prefers Infosys, TCS and HCL Technologies among IT space.

In the banking sector, he believes that the major banks have posted better than estimated earnings and remain positive on the sector. Large caps such as ICICI Bank and Axis Bank are his top picks among the BFSI sector.

Bandyopadhyay also believes NBFCs with retail lending to do well going ahead.

Meanwhile, Indian rupee remained volatile in the early weeks of the month while ended at 74.81 per US dollar on Friday. This week USDINR spot has been trading in a very lackluster range of 74.65-74.90.

Traders were expecting cues from the Federal Reserve policy but it was a non-event. Now the focus will be shifted to next week’s RBI policy, analysts said.

“Looking at the slowing growth, we expect RBI may cut repo rate again by 25 bps. This may give a boost to risk appetite and weigh on USDINR spot. Also, the sell-off in dollar index will continue to keep the spot lower, thus, unless 75 breaks we expect the spot to trade in between 74.50 and 75,” said Rahul Gupta, Head of Research- Currency, Emkay Global Financial Services.