'Steroid-driven growth model of government capex cannot continue,' says Shankar Sharma

In an exclusive interaction with Business Today, Sharma called the ongoing correction a ‘bear market’, which he said, might last for two to three years. The founder of GQuant also shared his insights on global markets, other asset classes, and the earnings outlook. Edited excerpts:

BT: How long do you think this bear market or underperformance will last? 

Sharma: In India, we usually have a four- or five-year cycle of a bull market and around two or three years of bear markets. Our current bull market started in March 2020, and we are already into the fifth year. So, it is safe to say that this bull market is over, and we are now in for a bear market, which will last for several months, up to two or three years.

Overall, I do not see a period of any meaningful returns coming from the market for the next three to five years. If anything, the period ahead is likely to deliver lower returns than a bank fixed deposit and possibly even negative returns till 2029-30.

Meanwhile, we will see trading rallies, and if we work very hard, we can find some good bottom-up companies, but by and large, the big macro bull market is over.

BT: What is your view for FY26? And where one should invest: large cap, mid cap or small cap?

Sharma: For the upcoming year, we will see trading rallies because the markets have been sold aggressively but I do not think the rallies are going to be durable because in a bear market you do get very strong rallies, but they fizzle out after a few weeks or months.

I see the same pattern repeating in the coming year as well.

We are due for a rally, and we might get one in April when the results still season start because expectations on results are extremely low. But we are not going to get a resumption of the bull market if that is what people are expecting.

BT: Where are you investing during this bear market?

Sharma: I am a global investor, and my capital is free and mobile to travel across the world. I have been a global investor since 1999. Therefore, my investing pattern is completely global, and today, my India allocation in equities is the lowest it has ever been.

In July last year, I moved nearly 50% of my liquid capital into fixed income in US dollar terms. The balance is partially invested in India because, in small caps, easy exits are difficult, but most of my equity investments are now outside India. 

In India, I am still looking for opportunities on a bottom-up basis. In fact, I recently invested Rs 30 crore in an unlisted tech company, and I might be investing another Rs 30-50 crore in two others in India.

It is just that we now need to work much harder to find opportunities than we did a year ago. But that is okay—we have seen such phases plenty of times in 35-40 years of being in the market.

BT: What is your view on the global markets? Which country do you think will outperform and why?

Sharma: I am extremely bullish on global equity markets, but I am extremely bearish on America and India, and I have been since the last quarter of 2024.

However, I have been bullish on Europe as well as parts of Asia. For me, Israel and Greece have been amazing markets, which have performed very well for me.

BT: Which sectors will attract attention in the next bull run?

Sharma: It is too early to start predicting, but we will get hints and clues once we are a few months or even a couple of years into the bear market.

However, I prefer technology companies, even in India, that are small but have unique business models. This is because I am not bullish on the local consumption economy, and I am staying away from companies that are focused on the local consumption story.

BT: Other than stocks, are you bullish on any other asset? Why?

Sharma: As I said, in the middle of last year, I moved 50% of my liquid global capital into fixed income, which gives me a guaranteed 10% in US dollar terms. I do not see the aggregate equity returns exceeding that this year on a top-down basis, even though individual markets may perform better.

I have been bearish on the US dollar since late last year, and because of that, all non-dollar assets look attractive, including precious metals and some commodities.

I am a table-thumping bull on China, and I have been since the middle of last year.

BT: Which factors do you think are putting pressure on the Indian market?

Sharma: This is a complicated question because there are many possible answers, but the core reasons are that Indian companies have no global presence, and when the Indian domestic economy slows down, they have no alternative strategy or plan.

There is no doubt that India is slowing down dramatically because the steroid-driven growth model of government capex cannot continue indefinitely, and this was evident as early as 2023.

As a result, the earnings outlook for Indian companies looks very weak, and so does headline GDP growth. I would be very surprised if India grows at 6.5% in 2026, as I believe there is a greater likelihood of growth slipping into the 5% range rather than remaining in the 6% range for the entire year ahead.

BT: How do you see earnings growth of India Inc in Q4 and in FY26?

Sharma: I am extremely negative on the outlook for Indian corporate earnings because hardly any company here is innovative. They are all milking the same Indian consumer in one way or another, and that trade is pretty much over since the Indian consumer no longer has the financial bullets to keep spending.

If you look at the valuation of Reliance Retail and the decline in it, that trend will play out across a broader spectrum of companies that sell a variety of goods and services to Indian consumers.