Nifty on track to record worst July since 2019. August becomes make-or-break battle

Amid disappointing Q1 earnings season, India-US trade deal delays, and a pronounced IT sector weakness, Indian headline equity index Nifty looks poised to break its four-month winning streak and record its worst July performance since 2019.

For the past five years, July has consistently delivered positive returns for Indian equities but this time the index is already down 680 points or 2.67% as FIIs have been net sellers in 14 out of 19 trading days of the month so far. This weakness comes as a particularly sharp reversal after the index recorded four consecutive winning months in 2025.

The benchmark has now decisively broken below two critical technical levels, the 50-day EMA and the 61.8% Fibonacci retracement of its recent upswing from 24,473 to 25,669.


"On the monthly chart, Nifty has been trading within a narrow range for the last 2–3 months, suggesting indecision among market participants," said Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities. "This sideways movement reflects a tug of war between bulls and bears, with neither side gaining a decisive edge so far."

Shah attributes the lack of clear direction to "multiple headwinds like absence of strong domestic catalysts, below-par Q1 earnings from key sectors and global overhangs such as trade uncertainties and geopolitical tensions."

The technical analyst notes that indicators are currently "neutral to mildly corrective," but warns that "a sustained move above recent high (25,250) could reignite bullish momentum, while a break below key support zones (24,450-24,400) may invite deeper correction."

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Q1 earnings disappointment

The recent market stress stems primarily from disappointing Q1 FY26 earnings rather than trade deal uncertainties, according to Om Ghawalkar, Market Analyst at Share.Market. "Corporate results have shown a pronounced slowdown, with revenue and profit growth hitting a nine-quarter low," he said.

"The IT sector, a market heavyweight, has been particularly affected — the index was down more than 9% in July," Ghawalkar added, emphasizing that earnings disappointment has been the primary catalyst for the downturn.

However, Vinit Bolinjkar, Head of Research at Ventura, offers a more nuanced view of the earnings picture. "While the IT sector showed weakness, with majors like TCS reporting muted revenue growth and Infosys narrowing its FY26 guidance, earnings from other sectors are not as concerning."

Bolinjkar points to resilient performance across broader India Inc: "Leading private banks like HDFC Bank and ICICI Bank posted strong profit growth. Double-digit growth from sectors such as capital goods, cement, and healthcare indicates a more resilient performance beyond the IT challenges."

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India-US trade deal uncertainty

The delay in signing the India-US trade deal has further dampened market sentiment. "A deal before August 1 looks unlikely due to persistent disagreements on tariffs, especially in agriculture," Bolinjkar noted. "This delay fosters caution among investors and has contributed to FII outflows."

FIIs have been net sellers in July, withdrawing around ₹9,500 crore, while domestic institutional investors have provided strong counter-support, absorbing the selling pressure.

However, Ghawalkar suggests the trade deal impact may be overstated: "India's domestic-oriented economy limits direct trade deal impact, with vulnerable export sectors representing only 1.1% of GDP."

August recovery on the cards?

Despite the current weakness, all three analysts see potential for a recovery in August. The Nifty appears to have found technical support around the 24,550 to 24,750 levels after four consecutive weekly declines.

"With July shaping up to be the first negative month for Indian equities since 2019, investors should be approaching August with cautious optimism," Ghawalkar said. "We believe this range could serve as a base for a potential technical bounce, possibly pushing the index toward 25,500 in the near term."

Bolinjkar is similarly optimistic about near-term prospects: "Technically, the Nifty 50 index finds strong support around the 24,800-24,865 levels. The index's historical tendency to rebound from these points suggests a robust floor, making a sustained breakdown less probable in the immediate term."

The path forward depends on three key developments, according to Ghawalkar: "Even a partial breakthrough in the India-US trade deal ahead of the August 1 deadline could trigger a relief rally. Second, stronger earnings guidance from companies would help rebuild investor confidence. And third, once uncertainty eases, foreign institutional investors may return to the market."

As markets brace for the final trading sessions of July, the consensus among analysts points to cautious optimism for August, with technical support levels holding the key to any potential recovery from what could be the worst July performance in six years.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)