Small-cap is the only game in India, says stock market veteran Shankar Sharma. He bought these two stocks  recently

The Interim Budget 2024 presented by the Union Finance Minister Nirmala Sitharaman has left the apple cart undisturbed, according to market veteran Shankar Sharma. The ace investor is optimistic about the current state of affairs, expressing confidence that the momentum in growth and capital expenditure will persist into FY25.

Sharing his perspective on the stock market, Sharma emphasised that small-cap stocks will remain a lucrative investment option for the foreseeable future. He stated, “I do not own any large-cap stocks. Small caps are the only game in town as far as India is concerned. Large-caps are reaching a ceiling in terms of size.”

The GQuant founder clarified that the vote on account revealed a nominal GDP growth of 10.5% for FY25. He asserted, “This is the key indicator for discerning the direction of the trend, whether it will favour large caps or small caps. Nominal GDP growth strongly influences corporate earnings, and large-cap earnings dominate the corporate earnings landscape, as small caps contribute relatively less.” Sharma shared these insights during an interaction with Business Today TV.

The investor further said that the profits of large caps simply mirror the nominal GDP growth of an economy. If the nominal GDP growth is projected to be 10-11%, rather than 15-17%, it becomes improbable for large caps, as a collective, to achieve 10-11% earnings growth. When the nominal GDP growth headline figure is anticipated to be 10%, it is reasonable to expect that the growth in large-cap earnings might be around 5% or 6%.

 “With such figures and elevated valuations, I find it difficult for large caps providing returns that surpass fixed deposits going forward,” Sharma remarked. He added that small caps are less expose to big macroeconomic figures, while large caps require a nominal GDP growth of 15-16% to make a substantial impact.

 “I don’t own a single large cap stock and I don’t want to ever buy HDFC Bank,” Sharma said. Over the past three months, the market watcher bought Thomas Scott which has more than double investors’ wealth since October 2023. He also added Valiant Communications which has rallied more than 35 per cent during the same period.  

The Union Budget also addressed the housing theme. Sharma noted that when the stock market performs well, funds also tend to flow into real estate. He mentioned, “I have engaged with the housing theme over the past year through investments in Rama Steel Tubes and Sumit Wood.”

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