(Source: BloombergQuint)

Bear Markets Are Inevitable. But We Aren’t There Yet, Says Shankar Sharma

Indian equity markets have had a rocky start to 2018. That's fairly routine for well-known investor Shankar Sharma who says he has seen plenty of such corrections.

“It is a normal correction and nothing more than that,” the co-founder of stockbroking firm First Global told BloombergQuint in an interview. “That doesn't portray any bear market or anything significant in my view.”

India’s benchmark Nifty 50 index, down 1.6 percent this year, has been volatile. It stems from various reasons ranging from a new long-term capital gains tax announced in the budget to weakness in global equities triggered by fears of central banks’ policy tightening.

Sharma said the major factor for the underperformance has been the global correction where India suffered a bit more. “But I don’t think it is anything out of character in a bull market and you will have these occasional situations lasting anything between from a few days to 2-3 months. It was long overdue.”

Eventually at some point you will get a bear market inevitable in any asset class, but we are not there yet at all.
Shankar Sharma, Co-Founder, First Global

He remains bullish on the commodities-linked sectors like chemicals, steel, infrastructure and road building which have seen a lot of shakeout. “All of these sectors like steel, chemicals, infra follow what we are looking for which is that reasonable market size opportunity,” he said. The opportunity for the existing firms in such sectors is high because there are “fewer players today than they were a few years back”.

Sharma is wary of the financial sector, the most represented sector in the benchmark indices Nifty and Sensex. “In financials, unfortunately, the problem is that there are no real assets. You have loan book. You don’t know what the value of loan book is, how much of it is properly provisioned, how much of it is not.”

I don’t like financials as a space broadly but there are exceptions.
Shankar Sharma, Co-Founder, First Global

Bullish On Small Caps

Known for preferring small-cap stocks, Sharma said the bull market in that space is young and vibrant. “In my view, that is the best space to be in. We go looking for troubled spaces in small-cap space but even in normal space there is plenty of money to be made,” he said. Sharma said for smaller retail investors, the best place to be in is mutual funds, as the risk is well adjusted there.

You already have a big divide in large- and small-cap return universe. And the spectrum of returns is very clear about where an investor needs to be, which is the small-cap part of the market.
Shankar Sharma, Co-Founder First Global

Watch the full interview here.