Investment Guide: Edelweiss’ Aditya Narain on yields rising & inflation worries

With yields rising - what is the interplay between equities and interest rates, has the market over-reacted to inflation worries. In this episode of CNBC-TV18 Investment Guide, Aditya Narain of Edelweiss Securities discuss extreme moves in bond yields.

Narain said, “I would tend to believe the extremes moves both in the bond markets and in the equity markets that followed I think they were a little bit of an overreaction. Yields rise for two reasons - one is if inflation risks are very high then they risk, when that happens that is typically obviously negative for bond markets but that ends to be negative for equity markets also.”

“The second scenario is that growth starts looking good and because of that bond yields rise. So in this later scenario that is actually typically fairly good for equity markets where rates are rising because growth is tending to be strong and expected to move up.”

Are rising rates a worry? Narain said, “There is always a trade off; if you are getting growth and you are getting rising bond yields, I think you are sitting pretty. If you are going to get inflation risks without growth coming through which is bad for markets, I don’t think that is something that tends to sustain for an extended period of time. So in that context I wouldn’t worry about it too much at this point in time.”

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