Is demand driving markets higher? Here's what brokerages have to say

After a record-breaking run, markets appear to be taking a breather this week. 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 that 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.

According to Samco Securities, 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.

In a note, the brokerage said that the demand uptick will be of great help to 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,” Samco Securities said in a report.

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, market watchers believe that 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 a 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 a bit of a slowdown around the key rising resistance line. Major global indices also seem to be reverting to their short-term mean.

“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 minimise the risk of being capitalised at extreme levels. Immediate support on the downside is now placed at 16,500,” Samco Securities noted in a report.

“The short term trend of Nifty continues to be range-bound. Having recovered in the latter part of Thursday, there is a possibility of an upside bounce in the next early part of next week before encountering another resistance around 17,500-17,600 levels. Immediate support is placed at 17,200,” said Nagaraj Shetti, Technical Research Analyst, HDFC Securities.