Despite Caught in Commodity Crossfire, Indian Markets Cheer on Investors

Natural gas soared and so did coal reaching record highs as the country faced shortages. These factors lead to a lack of energy to initiate a chain reaction. Metals, especially steel, which have already increased, may increase further due to rising energy costs. Cotton, sugar and coffee prices rose due to bad weather and shipping bottlenecks. Indeed, the Bloomberg Commodity Index has reached its all-time high this week.

Due to the current supply crunch and uncontrolled demand, rising commodity prices are impacting growth and reducing profit margins for businesses. And so far the only way is to pass on the increasing input costs to the end-user. Commodity-facing industries such as automobile, cement and paint manufacturers have already taken the first steps. In addition, the price of LPG LPG was increased by Rs. 15 per cylinder on Wednesday, while petrol and diesel prices increased at record retail rates. And this pattern is likely to continue in the future as well, which may not bode well for the end consumer.

While the rise in commodity prices is beneficial to some, their volatility and the consequences of spillovers are certainly a cause for concern for many, with the market bearing the brunt. As the demand-supply imbalance widens, investors are on edge, fearing inflationary pressures could stifle recovery. This is a matter of concern as policymakers may be forced to consider raising rates sooner than forecast to counter rising inflation. When evaluating companies for investment, investors should consider these factors.

event of the week

RBI’s MPC echoed the tone of the FOMC to retain its benchmark policy rate. The accommodative stance on repo rates has been maintained for the eighth time in a row, which has also taken comfort from the last two inflation prints that have been below the 6% upper limit and the RBI has been asked to lower its inflation forecast for FY22 to 5.7%. Has been prompted to reduce to 5.3. % Now. However, this time the approach of the committee seems to be textbook, with liquidity management being the first checkbox on their agenda, followed by increase in reverse repo. Going forward, if the Fed’s tone is anticipated in November, December could be the period when the RBI starts closing the gap between repo and reverse repo rates.

Technical Outlook

After the heavy volatility witnessed in the last week, the Nifty 50 index closed positive for the week. After forming the Doji candle, the index managed to bounce back from the support at the level of 17450. Although Nifty is still trading overbought, but it did not see any significant correction. Even major global indices have started getting support after a minor price and timing correction. The S&P 500 index has corrected around 6% in the past one month and is now finding support near 4270. Traders are advised to maintain a bullish bias for further upside but remain alert for any break of newly established support in global indices. Any break can trigger weakness in Nifty as well. Support and resistance are now placed at 17500 and 18050.

expectations for the week

Q2 FY22 Results Season is all set with Large Cap IT companies to report their results next week. IT stocks in India have been witnessing a strong rally over the past few weeks, driven by a spurt in deals and expectations of strong hiring, which could continue the growth momentum. Besides, the depreciation of the rupee has also played its part in keeping IT stocks in the green. But macro data on September’s CPI inflation, manufacturing and industrial output could dictate the index price for most of the week as the market continues to consolidate in its narrow range. Nifty 50 ended the week up 2.07% at 17895.2.