Veteran investor Shankar Sharma believes the worst is over for stock markets in India and said the real money-making opportunity is in the smallcap segment. Stocks from this space will soon make new highs, the market stalwart added.
“The clearest bull market I see is in the small-caps where (stocks are going to) take out the highs of January and going to go much much higher than that over the course of the next 12 months or so,” Sharma said while talking to CNBC TV-18 on July 28.
Smallcap indices have witnessed a decent run-up in the past 30-40 days, in line with headline indices. For instance, Nifty Smallcap 100 is up 7.85 percent during the period while broader BSE Smallcap has risen 8.33 percent. Meanwhile, BSE Sensex has rallied a little over 8 percent during the window, the expert added.
Sharma further said the headroom for smaller companies to grow is much larger than that for bigger companies, and that is what makes small caps much more attractive.
“Let's say an industry has a capacity of 100,000 tonnes and there's a small company with 5,000 tonnes capacity. It can go from 5,000 to 10,000 tonnes capacity because they have that much visibility but an industry leader with 80,000 tonnes will not be able to go to 160,000 tonnes,” he said. “That's the problem.”
In the small-cap space, Sharma appeared bullish on stocks from the pipe sector, building materials, and some MNCs. “You can easily put significant money to work buying 25 or even 50 stocks, of which I am 100 percent confident that 5 or 10 will be up between 100 to 500 percent in the next 12 months,” the expert opined.
Reverse compounders
On asked about his views on new-age stocks such as Zomato, Sharma, termed them as 'reverse compounders' as they, he said, will keep halving one's investment after every interval.
New-age stocks and similar consumer technology names have eroded notionally Rs 3 lakh crore of investor wealth since their peaks last year. The likes of Zomato, Paytm, Policybazaar and CarTrade are down 50-80 percent since then.
“It's nothing new,” said Sharma, alluding to the dot com bust in 2000-01. “One thing it has done is that it has at least taught the new age investors that in the listed market old conventional metrics of valuation need to be followed.”
Most of these new-age companies are loss-making, and many have not even delivered a profit ever. Management of some companies, for instance, Policybazaar, have said they are not looking to make a profit in the near future.
Even assuming they become profitable when they say they are going to be, most of that is already priced in their current prices, the market expert said. Without taking any specific name, Sharma said new age companies were “third rate businesses masquerading as first-rate businesses because they have something called an app and something called data.”
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own, not those of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.
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