'Don't get killed. Cut losses and make...': Shankar Sharma's advice for retail investors amid market correction

Noted investor Shankar Sharma has offered his advice for retail investors battered by a correction in small and mid-cap stocks. "Don't get killed, you will survive and you will prosper,” the veteran investor said in a podcast - Money Mindset with Sonia Shenoy. 

"Learn to use this opportunity, it's adversity, it's hitting you, it is making you bleed. This will make you stronger. Don't fight it, don't hate it – if you hate it'll come back more on you. Love it, embrace it, learn from it you will become better,” Sharma advised. “That's what I said on another show – that we have suffered all these scratches and wounds over 30–35 years. Let this generation also suffer it.”

Sharma's blunt advice comes amid a deep market correction — Sensex and Nifty have both retreated from their highs, with some small and mid-cap stocks down 50–60%. 

When asked what retail investors should do now, Sharma said they should cut losses and make fresh entries on winning stocks. "Strategy is to bet on winners, not on losers always in life. Whether it's a horse race or it is a stock market – if your losers are real losers, they're down 50%, 80%, 70% – look for the guys who are winning in the market. They are the ones who will take your boat out of this current trough, not the same losers.”

“Unlikely the losers will bail you out,” Sharma added. “Biggest problem with investing is – we don't want to get rid of the problem positions. We nurse them. It's hard for the ego to accept that loss has happened. Cut it (losses), move on. When you cut it...it's out of your system. It's a fresh start.”

“Make fresh start right now. Review everything. First principle, zero-based budgeting – cut out the losers. The stocks that are winning – that’s where you need to go. And you will see winners emerge now. Slowly, but they will emerge. Go out of the losers into the winners,” the veteran investor said. 

“I’ll tell you one year from now, even if you have a bear market, your stocks will be probably up a decent bit. Bear market doesn’t mean 100% of the market falls. 80% falls. Ask your wealth manager to advise you, brokers to advise you.”

Earlier this month, in an interview with Business Today, Sharma said that he sees no reason for sympathy for retail investors. “Stock markets — this is the way the game works. Like I said earlier, let them also suffer what we have suffered over 35 years.”

When asked about retail investors' limited capacity to absorb pain, Sharma pushed back. “We were also small at some point in time. We became big because we never cried. We went out, dealt with it, and overcame the odds. These people will need to do the same thing. The bloodletting has to happen. It has just begun, it will take a while to be completely out of the system.”

Sharma didn’t hold back on those who entered the market at elevated valuations. “They helped nothing but the FPIs get exits,” he said. “I see no reason why anybody should be feeling sorry for the investors who piled in the last couple of years... They will become better, if nothing else. This is part of a market journey as an investor. Let’s not be sorry for them.”

Meanwhile, markets have staged a recovery in the last few sessions. Sensex and Nifty extended their rally for a fifth straight session on Friday. Sensex jumped 557.45 points to 76,905.51, while Nifty gained 159.75 points to close at 23,350.40. Fresh foreign fund inflows and dovish Fed signals buoyed investor sentiment. 

Vinod Nair of Geojit Financial Services noted, “FIIs, whose selling activity has been waning, are becoming net buyers, driven by dovish signals from the US Fed, which suggest the possibility of two rate cuts this year. This has reignited optimism in the domestic market.”