‘Stock market momentum is nothing spectacular’

PALAK SHAH Mumbai | Updated on January 22, 2021

Shankar Sharma

Shankar Sharma is the Vice-President and Strategist of First Global, one of India’s best performing portfolio management services companies that gave around 40 per cent return to investors.

Sharma is never known for beating about the bush and gives a frank opinion on stock market directions. In an interview with BusinessLine, he talks about Indian’s standing in the global stock market scenario.

Recently you have stressed on diversifying towards global markets. Sensex is at 50K and has doubled in nine months. Were you surprised by the rally?

In terms of stock market gains during 2020, India was ranked 18th on the list in terms of performance of global markets. In that sense the rally is nothing spectacular.

But India was the top performer among Emerging Markets...

If you keep reducing the number of competitors, India may be the best against Sri Lanka or Bangladesh. It makes no sense. The fact remains that Indian markets (key indices Sensex and Nifty) generated 12 per cent return during 2020 while there were 17 other markets that performed better. In my view, India remains an average performer in the global context.

In fact, if you see the data since 2015, India has not featured in the list of top 10 best performing markets. For only one year, in 2017, India was five or six on the list. 12 per cent return is not bad and my views are not against India but I only say that there are far bigger opportunities globally. Indian market is only 2.5 per cent of the world markets. So it makes no sense to focus 100 per cent of your energy on 2.5 per cent. Hence, we have diversified investments to global markets. For instance, Japan did much better than India in 2020.

But Sensex, Nifty have doubled from March 2020 lows. Was the speed of the rally surprising?

You can take whatever period….and there is no point taking the middle of the year. Returns are calculated for a calendar year. Is there any other measure, which I am not aware of? India’s return till September was only 2 per cent. The other 10 per cent came in the last three months. If you see a monthly return for India, it was just one notch above Pakistan till September. During October, November and December, India staged the rally. India is participating in a global bull market and that is all it is and the returns are in the middle of the pack. Neither the worst nor the best, 18 out of 45 is average, not best.

Can we say that the rally has just begun for India?

Yes of course... There are other EMs like China, Taiwan, South Korea that have done far better in 2020. Then there are Vietnam and others. Overall, the EMs have done reasonably well during 2020 and I expect them to do reasonably well this year too. After a long period of very poor returns, emerging markets and India should be able to deliver good returns in 2021 and 2022.

Are EMs going to be the bet for 2021?

Yes. In that context India will also do okay. I am repeating myself... there is nothing special about India. It is part of the global emerging market revival and to that extent it will also benefit.

China is benefiting double that of India and so are Taiwan and South Korea. It is possible that the current cycle will reverse and EMs may outperform developed markets like the US. This is because the US dollar has weakened and hence EMs will do well since money comes out of the US and flows elsewhere. For me, India is only one market out of 45 world markets. There is no emotion attached to money-making. We go wherever money is made and money is made in markets like Vietnam, Taiwan, Korea, and parts of the US. In places like India where we got average returns, we made average allocations.

Will global markets do better with Biden as US President?

The US knows two things pretty well, which is currency printing and war games. They have a huge military machine that they need to keep engaged and their money printing makes it impossible for the US to slip into recession. They can’t tolerate recession or austerity, so they are good at finding a way out. T

hey did it in 2008. They can go on for another 4-5 years from now or until the situation is stable. But somewhere the pressure will show and that is the dollar. This fall of the dollar will ultimately lead to good for emerging markets like India.

Which sectors attract you?

China is very attractive. In India, cyclical sectors like steel, cement, auto and metals are good. Last year’s play may not repeat this year. But in India a wide range is not available.

You don’t have big technology companies like in the US. So you have the same Maruti, TCS, Infosys, Reliance, Hindalco which I have seen for 25-30 years. There will be a few new listings here and there like Indiamart but by and large, it remains centered around the old economy. India should focus on building technology companies. If you look at other markets there are tech companies with $20-100 billion market cap into which one can invest.

What are your expectations from the Budget?

Corporate tax is already down so I think this time there will be some relaxation in income tax. They may increase the tax on the rich and cut it down for the middle class. I hope they don’t increase tax on stock market activities. Let people make money from the market because that will drive consumption.

Published on January 21, 2021

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