Market veteran Shankar Sharma expressed his thumping bullishness on the small- and mid-cap companies and called them the real story of India, in an exclusive interview with Moneycontrol.
The founder of GQuant Investech, an investment analysis company said, that is because each part of India is equal to the Gross Domestic Product (GDP) of large countries like Saudi Arabia, Turkey, and the United Arab Emirates, and if we divide India's $3.5 trillion economy into 4-5 sections, each section, on average, will be roughly between $700 billion to $1 trillion.
“This does amazing things for small companies. It gives them the ability to service their products in areas where they have a consolidated position, factory, logistics and distribution,” he said, adding that this advantage can't be replicated by big companies.
Also read: Shankar Sharma likens investing in smallcap stocks to betting on a marathon race
According to Sharma, small companies now have a large addressable market and can record numbers that were unheard of a few years ago. He recalled his conversation with a jewellery brand servicing in the eastern part of India. That company is now on course to make profits of about Rs 120 crore to Rs 130 crore. "This just shows that India is a collection of large markets instead of just one large market," Shankar said, referring to the capabilities and underlying potential of small caps. "These markets will be exploited better by smaller companies rather than the giants."
When asked if the earlier trend of the top three companies gaining market share at the expense of the following 7-8 companies is changing, Sharma believes that there is a reversal on the cards.
"Small companies stand a great chance of nibbling away at the market share off larger companies across segments," the GQuant founder said. In his view, large companies will have to work harder to retain market share owing to the stiff competition small players in the market pose.
Also read: Shankar Sharma's 4 AM strategy, Brightcom blueprint and lessons learnt from bad bets
Shankar said he sets aside roughly 20-25 percent of his investible portfolio in companies that have some degree of problem. He, however, said that problems in the above companies should be visible and rectifiable. He shed light on the tendency of people to invest 100 percent of their portfolio in such companies and said that is the starting point of problems.
He recommends one should own stocks that have the potential to give 15-30 percent returns but that should be only limited to a very small chunk of the entire portfolio.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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