The rally is being driven by beaten-down stocks and not the quality stock, said Shankar Sharma, Vice-Chairman and joint MD of First Global, in an interview with CNBC-TV18.
"If you see the complexion of this rally of the last three months and in particular of the last 30-35 days, quality stocks like Hindustan Unilever, Nestle, Asian Paints have not rallied. In fact, what has rallied is the
Bank Nifty, Realty and stuff like that which I consider the low-quality of the market or high beta of the market. Even among banks, HDFC Bank or Kotak Mahindra Bank have not rallied, but RBL Bank has probably doubled. This has been a rally driven by beaten-down names rather than the quality names," said Sharma.
Sharma said there is a big difference between the rally in India and in other big markets.
"India has been a very tricky market in the last 30-40 days," said Sharma.
Sharma said he has invested in Reliance and he believes that the valuation of Jio is low and unjustified and it deserves a valuation of about half-a-trillion dollar.
"My personal view is that $60-65 billion for a business of this size and scale that Jio is, and $50-60 billion have been invested in it in the last 9-10 years, a $60-65 billion valuation is nothing at all. Jio should get a valuation that is closer to half-a-trillion. That I think is the third world country discount. It is just an India discount," Sharma said.
Talking about the impact of the moratorium on the financial sector, Sharma said he is not sure when the sector will come out of the woods.
"I believe there are still problems ahead and this moratorium is encouraging and will encourage a lot of bad behaviour. We have to be careful with financials as it is the riskiest end of the market," he said.
Small-caps have witnessed significant gains over the last one month period. Sharma attributed the rise in small-caps to the fact that they had been in a bear market for the last three years.
"From the peak of 2017 to the bottom of March 2020, the Smallcap index had corrected 50 percent. A 50 percent fall in an index, the odds are you are going to see a substantial rally. I won't be surprised if they continue to outperform for some time now given that they had been in a bear market for the last three years," he said.
As the market rallies on the contrary to the trends of the economy, Sharma said The stock market is no longer a barometer of the economy; it is the barometer of the economic power of select 30-40 companies.
Commenting on the impact on rising India-China tensions and its impact on the market, Sharma said stock markets are not about geopolitical issues.
"I don’t think Indo-China issue on LAC is bothering many people," he said.
He said while the market may lag global peers, that there are still some stocks in which one can make money.
"Market is only about probability. I believe there are many stocks that might test their lows. while the index may still see some degree of stress going forward, there is a global bull market on. When there is a global bull market on, it is unlikely that one market is going to be a significant or severe bear market. India might lag the global rally as it has lagged already. We have enough stocks in which you can make significant money," he said.
There is a consensus-building on what will work in the market which had made things significantly simpler for the market.
Sharma said markets are not very complicated all the time.
"Right now, the trend is to buy the beaten downs, buy some of the large-caps, or a handful of small-caps. One needs to be very vigilant. I am not going out and starting to believe everything. Play everything but don't believe everything. For the stressed part of the market, there are troubles going ahead. I am sure about it," said Sharma.
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