Equity investors on Dalal Street have lost more than Rs 25 lakh crore in May so far as the market capitalisation of BSE-listed firms declined to Rs 240 lakh crore on May 12 (around 3 pm) from Rs 266.97 lakh crore on April 30 last month. A couple of factors including weak global cues, rising concern over inflation and heavy selling by foreign institutional investors (FIIs) weighed market sentiment. Meanwhile, Business Today caught up with market veteran Shankar Sharma, vice-chairman and joint managing director, First Global to understand what investors should do amid the ongoing turmoil in the stock markets. Edited excerpts:
Business Today (BT): Midcap and smallcap indices have cracked more than 18 per cent from their respective all-time highs so far. Are we heading for a bear phase?
Shankar Sharma: Bull and bear markets are the part and parcel of investing. At present, we are in some degree of a bear phase. Several investors who entered the market post-Covid crash are still not able to understand what is going on in the equity market. This is a tricky exam where some of the easier questions come first, and then somewhere in the middle, you start to get trickier and trickier questions. And towards the end, the trickiest questions are there and this is really where we are right now.
BT: There are some out of syllabus questions in this exam paper. Look at the kind of geopolitical tensions that we have come across, we were not prepared for this, and now the kind of inflation. So, how are you looking at unprepared things that are coming into the markets?
Sharma: Welcome to the market, there is no syllabus here. Inflation, oil prices and war all are a threat to the market. These things keep happening here for a long. It has not happened for the first time. So, the point is that all things are temporary. The smarter people will survive without panicking. Some good stocks will come out of it and the next bull phase will give you back most of what you lost.
BT: What should investors do in this setup? Is it a time to stay away or is there some opportunity to buy the dip?
Sharma: There is always an opportunity. The point is that you should know the art of picking the stock in this market. In a bull market, there are wider choices available to investors. In a bear market, choice narrows down.
BT: Where do you see the buying opportunity? Is it large caps or commodities?
Sharma: There are no hiding places in a market meltdown. All of us are losing money. My P&L does not make me feel very good right now. It is not possible to survive a bear market with actually positive returns unless you are very smart enough to buy put options. In one line, I will say buy stocks that are holding up well. In a fallen market, most people tend to sell their good stocks and buy stocks which are fallen a lot that’s usually not a wise strategy. So you should buy strength in a bear market. Usually, those stocks will bounce back much quicker.
BT: Since you are a global investor too, which other markets are looking firm at this point?
Sharma: India is probably the best one right now. The country appears the safest market not because you will not lose money, but because you will lose the least money here.
BT: Between the large, mid and small caps, where would you put your bets right now?
Sharma: Midcaps and smallcaps are the areas where you will make outsized returns as many companies are doing very well. However, just because companies are fine does not mean the stock price cannot fall. It is a long-term phenomenon.
BT: As you said India is the best market to invest in right now. So, why FIIs are on selling spree?
Sharma: To a large extent, it is not an India specific view. It is an emerging market view. India is one of the markets in that India, just two, two and a half per cent of world markets. In terms of market capitalisation terms, it is a very tiny market. When large allocations shift from emerging markets to develop or from equity to debt, there are outflows from China, Taiwan, Korea, Brazil, Russia, and also from India. These large portfolio flows don’t mean that people don’t like India. They don’t like emerging markets. And that’s the reason for these outflows.
BT: How do you see the trend till March 2023?
Sharma: It’s very hard to make one-year views. Instead, I can tell you is that you should buy strong companies and stay with those as long as the numbers are coming through, even in a difficult environment. Nobody can predict the headline index. I don’t even want to go there.
BT: Did you invest in the country’s biggest initial public offering LIC?
Sharma: No, I don’t invest in IPOs. I have never found anybody to make money investing in IPOs. So that’s not my style of investing.
BT: What is your advice to sector-specific investors?
Sharma: Metal space still looks okay considering supply-side constraints. The IT sector will still do okay. If the US slows down, then the rupee may provide some cushion because the currency appears weak.
BT: Lastly, how are you looking at your personal portfolio amid the ongoing correction? Are you fully invested right now?
Sharma: I have started to move a bit from fixed income to equities. However, I still believe there is pain ahead for equities.