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Last Updated : Jun 11, 2016 01:16 PM IST | Source: CNBC-TV18

First Global's Shankar Sharma: I am not a bear

In a freewheeling conversation, veteran investor Shankar Sharma of First Global talked to CNBC-TV18's Anuj Singhal for the show Unplugged. Excerpts from the interview.


In a freewheeling chat, veteran investor Shankar Sharma of First Global talked to CNBC-TV18's Anuj Singhal for the show Unplugged. 


On his permabear image

Fact of the matter is I am not a celebrity, I don't derive my income out of celebrity like Amitabh Bachchan does, he has a problem if he is typecast, I don't have a problem if I am typecast, but I don't think the description itself is accurate because I have been bearish all of twice in the last 25 years which was in 2000 and 2007. The reality is nobody else comes out and says even if they do believe it, so if I do come out and say it twice in 25 years, I don't think that qualifies as a bear. 

In fact, I have always made more money in a bull market than in a bear market. The bear market call is just insurance; it is protect what you have made in the bull market.

Why he likes to invest in 'complicated' companies


The reason why I like companies which are a little complicated, problems are a little complex is that I believe that if I am entering equity markets I am not doing it because I am trying to buy a debenture, so I completely have distinctions between my own personal portfolio wherein my fixed income part yields me a dollar return of 14-15 percent.

The only areas I have seen in the market where you can make that kind of returns are companies with debt -- there are lot companies with debt -- I was looking at indebted companies, just two-three days back, there are names that you wouldn't have believed could be there five years back.

Close

There are companies like Moser Baer on it. The marketcap might be a few hundred crore and debt is Rs 5000 crore. There are many such storied names which are in there. Those areas you will need to go in with a lot of care.

Challenges facing IT and pharma sectors


Two big bulwarks of India have been IT and pharmaceutical and both are facing very severe challenges, extremely severe challenges and it could be a challenge of the kind that at least IT may not be overcome. I mean cloud; I think is a serious problem. Cloud represents a complete new dimension. It's so disruptive to our IT models that it can completely force them to revisit every single assumption of theirs. And pharma has been facing problems of obviously not having been very kosher of the way they are doing business. Pharma may be able to overcome but IT is in a spot of bother.


His investing philosophy

You look for a certain basket of stocks which you cash them before they become popular, you ride them all the way to their popularity highs and then you short them when you think they have gone completely out of whack, which is what I did in the tech book of 1999-2000. The same stocks that I made money going long, the same stocks I made money going short. And I have no emotional attachment to any company or management.

I am interested in the stock market. Very, but only when I am seeing 50-100 percent returns per year in a stock or a basket of stocks which usually will happen when there is trouble. It will not happen in a steady state, normal situation.

I believe timing is everything means everything.

How does the current market look?

In the last two years, I have pounded the table on small and midcaps and number of mutual funds and CIOs have disagreed with me periodically saying that no, largecaps will come back. My view was that India does not have enough economic growth, forget the 7.9 percent - that is all rubbish and we all know that. The real underlying growth is still tepid. It is not bad but it is not great either.

For largecaps to do well you need a strong, solid, genuine 7.5 percent and that is not going to happen but for smaller companies you do not need 7.5, you might need 4-5 percent. They can figure out growth in small geographies, small product markets, small segments and that trade has worked out beautifully. And I still continue to believe that Indian smallcaps are the single best equity class in the world without any doubt.

Ideas to bet on

We have liked smallcap infrastructure, smallcap chemical companies, some of the smaller financials and they all are doing well and will continue doing well.

I like Tata Motors, but I do not think there is huge untapped story in there which you can make. I think you can make a comfortable 15-20 percent from it.
Broadly, on a philosophical basis, I do not like banks. There have been a few exceptions. IndusInd Bank - we were the first to discover it at Rs 40.

HDFC Bank, we put out our first research when it was listed in 1996. By and large banking will make you four-five years of money then they will take big hits which will wipe out the previous years, four-five years of profit and that is exactly what you are seeing in Axis Bank.


Being an avid reader, and his favourite book


Both [wife] Devina and I are very voracious readers and hard to put a name to one book but when I was a kid I read a book called Fountainhead by Ayn Rand and that is a seminal book if you want to read about contrarian thinking, how to stand against the herd, how to stand against popular notions and logic. I was just out of school when I read it. It creates a big impression on you. I think that is a phenomenal book.


Passion for cricket


I played for my state Bihar, I played for my zone. I played for my college (DAV College in Chandigarh) which had produced greats like Kapil Dev and Yograj Singh. I have been fortunate enough to be coached by Yograj. He just finished playing for India and then he became a college coach and Yuvraj used to be a kid of two years when the net used to happen, he use to come.


I am privileged to have been coached by a person like Yograj because his attitude towards sports, it was so ruthless that you will never give up, you will keep fighting till the last ball and that is true for life. So yes, cricket has been very central to my life.

I [still] watch a lot of test cricket. Any country playing against country I will watch.

My favourite ground is Eden Gardens. I watched cricket in the early 70s there. India versus West Indies when [Gundappa] Viswanath played such a brilliant inning and also watched India versus England but after that I stopped going to the stadium.


On cities he loves

I love being in Bombay. I loved this city. The city has given me everything for sure. I came with almost nothing here. But if you talk about a place where we would really like to go and live, I mean there is a small town in America, it’s in the northern part of New York states, it is a small town, very quaint town called New Paltz where we have spent maybe a couple of years.



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First Published on Jun 10, 2016 02:43 pm
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