Home / Markets / Stock Markets /  What is driving record rally in Indian stock markets?

Nifty50 closed the week at 17369.25, up by 0.26%. A miss on the US jobs data, while concerning, will most likely mellow down any tapering talks for the time being. However, it is the continued policy support which will drive the performance of bourses globally. And this sentiment baton has been passed on to the Indian indices as well. 

While a range of macros and micros are offering tailwinds to the ascent, the current investor confidence is not unfounded and is more demand driven. Markets were supported by savings in costs the last year but now the excitement is more demand-pull. With each passing day, the narrative around declining inventories and higher order wins only grows stronger. 

Demand uptick will be of great help boost margins across industries, whether it is autos, where supply is constrained owing to a semiconductor shortage, or real estate, which is seeing a substantial offtake in inventory due to strong bookings. 

Demand is demand, whether it is pent-up or not, and macroeconomic factors are playing a significant role in boosting inquiries. Lower mortgage rates and greater affordability are acting as a catalyst for NBFCs and banks, which have seen one of the strongest demand for loans in recent years, particularly in the housing segment. Furthermore, a renewed focus on infrastructure expenditure throughout the world is helping to keep metal prices and cement utilisations afloat. If all cards fall into place, it all adds up to a good topline for companies in the foreseeable future. So, this demand up-cycle is one of the several factors providing the momentum for the bulls to lead.

Event of the week

Commodities are in a similar scenario with prices rising due to a supply-constrained environment. Within base metals, aluminium is experiencing a supply shortfall as a result of the recent coup in Guinea, while zinc is seeing a price increase as a result of lower inventory levels. Furthermore, sugar is in short supply owing to a frost in Brazil. Because of growing freight costs and container shortages, coffee and tea are in a similar predicament. While there is stronger-than-expected increase in prices, demand for the commodities has risen or is largely stable. Investors must keep a close eye on commodities as they play an instrumental role in inflationary tendencies going forward.

Technical Outlook

Nifty 50 index, after the recent sharp rise, has been witnessing bit of a slowdown around the key rising resistance line. Major global indices also seem to be reverting to their short-term mean. So a mild pullback by our index towards short-term averages cannot be ruled out. The Bank Nifty index again started consolidating around its previous all-time high levels and could not close decisively above the resistance. The trend continues to remain bullish and traders are advised to initiate long positions only around dips to minimize the risk of being capitalized at extreme levels. Immediate support on the downside is now placed at 16500.

Expectations for the week

Following a rapid rally above 17,400, Nifty may face small bumps on the road in the coming week. The core US inflation data may cause whipsaws in the markets incase it strikes a sensitive chord of taper talks. However, the overall bullish theme is expected to continue with profit taking in overpriced stock specific counters. As a result, investors must continue to invest in fundamentally strong stocks for the long term. 

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