India hasn't seen inflation like this in a long time, says Edelweiss Securities' Aditya Narain

Shagun Walia

India has not seen inflation like this for a fairly long period of time and it poses a major threat to the domestic equity markets, says Aditya Narain, MD & Head of Research, Edelweiss Securities.

Speaking exclusively with Business Today TV's Udayan Mukherjee, Narain said Indian equity markets are risky at present but still are better placed than other emerging markets at this point of time.

“It's not a market phenomenon, which is a pullback after a strong rally. I do believe that the economics have got stretched a little bit at this point of time given what inflation has done”, he said.

Narain is of the view that inflation is just one part, the other one is the policy response. “I think markets clearly continue to be at a little bit of risk. To an equivalent amount, the economy also seems to be at a little bit of risk”, he added.

Narain, who remains optimistic about the financial sector because of improving asset quality, pointed to banks, two-wheelers, along with the energy sector as good options.

"The other space that we actually like is the two-wheeler space is a slight contrarian in the face of rising fuel and in the face of commodity prices. But the reality is, that's where valuations have been beaten down reasonably substantially. Expectations are fundamentally very, very low. And so you're getting to buy good companies at cheap prices with no growth expectations. And, if you're generally defensive on the market like we are, I think that's where you can get a little bit of upside", Narain added.

The third space is the energy space, “We tend to believe that the whole primary oil and the refining that goes with it. I think that has seen a little bit of a structural uptake,” he noted.

Narain said it is going to be difficult making money in the cement space.

“We believe that the mix of an aggressive player and an aggressive capacity response that you are seeing from the incumbents, is right. I think that is something that is not great for the sector as such, it will weigh on the sector," he said.