Market May Taper In 2020 As Economy Narrows, Says Edelweiss’ Aditya Narain
Indian markets are likely to taper as only the biggest company stand to gain in a supply -demand mismatch, says Aditya Narain.
Indian equities are likely to taper during the rest of the year as the economy narrows with only the biggest companies gaining market share, according to Aditya Narain.
While the situation across India’s economy isn’t as bad as expected earlier, demand and supply are still in severe mismatch, the head of research at Edelweiss Securities told BloombergQuint’s Niraj Shah. The gap in demand poses a risk to smaller companies, their growth and consequently a smaller pool of stocks for investors to invest in, he said.
On one hand, there are stocks to play with which are doing well but on the other, there’s a possibility that the economy isn’t expanding in its breadth.Aditya Narain, Head Of Research, Edelweiss Securities
Manufacturing and consumption need to match for markets to move to a “comfortable territory”, Narain said. The dust of the pandemic’s disruption will settle in the next few months when people will be able to see what has been manufactured and what has been bought, he said.
“The narrowing of the economy would be misleading that the entire economy is rebounding as quickly as some of the biggest and big companies,” he said.
Narain cautioned that there is a fundamental drop in demand which investors need to look at. Given that the market’s recent uptick was expecting a similar uptick in the economy, weaker aggregate demand could lead to a “drop off” a little.
However, he does not expect a sharp outflow of funds either.
Key highlights:
- Edelweiss is going underweight on some banks and overweight on some—overall, neutral on the sector.
- Natural for banks and financials to bear the bulk of the pain.
- Negative on banks because there’s potential socialisation of macro costs.
- Banks and financials will take pain on the asset quality perspective.
- Lack of certainty, large risks are reasons to be underweight on the banking sector while upcoming certainty and understanding of the problem neutralises the sector.
- In the next 3-6 months, appetite should start coming back for banks to start lending. That’s when Edelweiss will become aggressive on the sector.
- Valuations are on the higher side, but interest rates are on the lower side. With valuations being higher, the economy has to catch up and the reformed economy might do so.
- The longer the economy takes to recover, the greater the eventual fiscal pain will be.
Watch the entire conversation here: