Shankar Sharma warns of challenges for Indian stock market in Samvat 2081, sees opportunity in Chinese stocks

The Indian stock market delivered an impressive performance last Samvat, with the benchmark Nifty 50 soaring almost 25 per cent. However, according to Shankar Sharma, ace investor and the founder of GQuant, an AI-tech company, Samvat 2081 could be challenging and a year of moderate to negligible returns.

"India's performance in the last year has been exceptional, to say the least, and frankly, a little beyond my expectations. I think the coming year will be far more challenging than investors are prepared to accept," Sharma said.

Sharma believes that the end of the bull market could be near. He pointed out that the Indian stock market has been on a solid uptrend for the last four years, and usually, bull markets lose steam between five and six years.

"We have had four amazing years of a bull market, and usually, bull markets retire between five and six years. It does not necessarily mean a bear market. All it can mean is a year of moderate to negligible returns," he said.

Views about the Indian market

Sharma underscored the stretched valuation of the market. He highlighted while valuations of the Indian market have always been much higher compared to those of most emerging markets, one must be cautious about the crazily valued markets.

At this juncture, Sharma is positive about the Chinese market.

"China is one such bit of a market because it has underperformed for a very long time. I do believe it is at an inflexion point, and the returns from China for the next few years can be far ahead of the returns from India," he said.

He believes investors must be cautious due to weak corporate earnings and moderating economic growth.

"We should be cautious about GDP growth numbers because I do believe we are in for a moderation in GDP growth numbers as the government capex slows down," he said.

Investment strategy

Sharma said his investing style is betting on 25 to 50 small and very small market-cap companies and is not interested in large-cap stocks because they have little headroom for growth.

"For me, the large-cap segment holds no interest whatsoever because those are companies that have already become extremely big relative to the size of the economy, and the headroom available for large growth is vastly limited. It is small caps and even smaller caps, and I'm prepared to take the risk and significant losses that come with small-cap investing," Sharma said.

"M investing strategy remains unchanged for the next 12 months, which is to buy a basket of 25 to 50 small and very small market cap companies. I do know that even in the worst of markets, I'm going to get at least five stocks that deliver massive returns and which will more than make up for any losses that I make in the bad ones," said Sharma.

Read Shankar Sharma's full interview here

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