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It is like a huge buffet table and I am spoilt for choice; it is a fantastic time to be in the market: Shankar Sharma

"Buy every dip from here on for the next several years in India and that is the easiest way to understand this. Do not micro manage these relationships; make this into a longer term relationship instead of it becoming one night stand," says market veteran Shankar Sharma.

We had to wait almost till December to have record highs in 2022 but we have really weathered the storm and look at where we are today! You said now is the time to romance the market.

Is that the sentiment you are going with even today?
100%, if anything it is becoming better with time. Now you understand his or her nature depending on your gender. You are getting more comfortable with wanting to continue and morph this short term affair into a longer term relationship.

And in this lovely relationship, tell us a little bit more about what it is that you are advising one should do? Is it trimming exposure to some of the sectors that you have given now that there are also bouts of volatility that we are ever so accustomed to?
Look, my view is very simple. There is no point trying to micro-manage this relationship. There are times when you need to micromanage a relationship, there are times when you develop faith in which you do not need to micro manage a relationship and so you should not be asking where you were last night, to your spouse.

I think we have entered that phase of the market. I think this is a market that you can trust to deliver the goods and I do not think we should be becoming too micro and saying that okay should I trim this, should I exit this? Should I enter that, should I rotate this? If for the last six months, you have bought a quality bunch of 25-30 smallcaps, maybe 40 smallcaps, I am sure if people followed that simple advice, many would be sitting on substantial gains having erased the losses from November down until the lows of April, May. This is no time to micromanage; buy your good quality companies, if they are not performing well only then think of exiting them otherwise stay put in the trade.

Look at the stocks that have got us to where we are. The likes of Adani Enterprises, ITC, M&M have been some of the top contributors. What do you make of the texture of the market, the exposure to some of these high beta names in particular within the auto space?
I do not own any autos. My hands are full, owning a lot of ancillary companies which are supplying to the auto companies. There are other spaces as well. For a fund kind of investor, some of these stocks look good.

By and large, in my view the Adani Group of companies have been absolute surprise pack for almost every investor and given the FPO that they are going to be doing, a lot of the issues will be addressed in terms of their leverage and all that, provided you are comfortable with the valuations. Many people can choose to question that but provided you are, a number of them may well continue to surprise us on the upside.

Autos are a mixed bag. But by and large they are still okay. Barring IT which is itself in a bit of bother because they are attuned and oriented towards the US markets, themes which are playing on domestic consumption may well be better places for investors to look for rather than companies which have thrived and survived on exports because data from the developed countries or from China is very problematic and very soft. So exports or export-oriented companies will probably not deliver the goods, domestic-oriented companies will do far better.

PSUs have been at the leading front and that is where really the gains have been within the space. There are a lot of opportunities, not just banks, there is railway capex, defence stocks. Do you see merit in looking at some of these names as long-term opportunities?
I am not interested in doing business with companies that do business with the government of India. So I have avoided these sectors by and large over my investing career barring exceptions like BHEL in the ‘90s which was a very different kind of company and a different kind of trade. But other than that, I have not invested in companies which do business with the government of India because single buyer risk is substantial and it is going to be problematic from all kinds of things, margins, payments, litigation, CBI raids, you name them. People are welcome to buy railway stocks or defence stocks, I am not a buyer there.

What do you think is going to be the factor that could change sentiment? Crude oil prices, of course, are supportive for us but there is that looming concern over inflation, the Fed saying that they might potentially slow down but where do you think there would be the key risk factor for the market?
I do not think there is any risk factor. Inflation was obviously a problem because of which we corrected substantially. I think that risk is now behind us. I do not think we are going to get major shocks on the crude oil front. I just do not see any major huge derailment risk for our current bull market. There will be, of course, corrections here and there, but every single dip from here on in India is an absolute and total screaming buy.

Last time you had also said that you would rather buy tomatoes instead of the Zomatos of the world but they are really singing the right tune on the path to profitability. Is that changing your mind at all or are you still convinced that these are not going to be wealth creators?
I am happy that they have finally discovered that the listed part of the stock market needs profits. I do not know why nobody told them this before. They should have known this before going to the public markets and destroying lakhs of crores of wealth, which is what these startups have done there. Somebody with B.Com first year level knowledge should have told them. So it is good they are coming around and finally figuring out their profit, EPS, ROE, cash flows matter.

But I think they are a long way away from becoming sensibly valued and even if they were to turn profitable, sensible valuations in India cannot be at price to sales multiples of 20-30-40 times or potentially far out price to earnings multiples of 200-250 times. I do not think they are in the realms of rational valuations right now, even if I assume that they are going to become profitable.

Can you be a little bit more specific as to where exactly you are seeing opportunity in this market?
I think real estate is a great opportunity if you find good real estate plays. I am very optimistic of the real estate market in India. It has gone through a big bear market in the last several years. Real estate will surprise us on the upside because if real estate does well, it has a lot of downstream effect on a number of sectors or right from building materials to services around real estate all of them become very interesting plays.So, a laminate company or a plywood company, a pipes company – will all do well.

It is literally like the auto industry. If you like autos, then the ancillaries will do well so if you like real estate then all the ancillaries to real estate demand will do very well. I just named a few building materials, pipes and TMT bars and stuff like that and I have invested in a bunch of them. I have invested in a company called Kamdhenu Ispat which is a leading manufacturer of TMT. I have invested in Rama Pipes which is a leading manufacturer of pipes. I have invested in Sumit Woods which is a very niche northern Mumbai suburbs real estate redevelopment company. I am walking the talk.

We had a chat about a month ago with Mark Mobius and he was also talking about the smaller the company, the possibility to get bigger is far more and that is a strategy that you have adopted and have looked at. Looking at the kind of catch up play that we are seeing with the broader end of the market, are you saying that there is a lot of opportunity within mid and smallcaps?
Yes, yes it is an unlimited opportunity. I am inundated by all kinds of companies, transactions and I do not think the market is expensive at all. If you look wisely and look carefully, there are any number of fairly reasonably valued plays in the smallcap space. I can easily see anything between 15 to 25 very decent opportunities below 20 price earnings multiples, for decent ROEs and decent cash flows. I am spoilt for choice. It is really like I am at a huge buffet table and I do not have enough appetite or even the wallet to be able to eat all of them. It is a fantastic time to be in the markets.

We are at 18,600 right now. What does 2023 have in store for us?
If you are asking me index level, that is fraught with danger and fraught with the risk of looking stupid. I am just saying buy every dip from here on for the next several years in India and that is the easiest way to understand this. Do not micro manage these relationships; make this into a longer term relationship instead of it becoming one night stand.

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