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Shankar Sharma, a prominent investor and founder of the AI-tech company GQuant, has expressed cautious optimism about the Indian stock market's performance in the upcoming Samvat 2081. While the previous year saw impressive growth with the Nifty 50 index soaring by nearly 25%, Sharma believes the coming year might present challenges and offer only moderate to negligible returns.
Sharma's caution stems from the observation that the Indian stock market has been on a strong upward trend for the past four years, a period often associated with bull markets. He suggests that bull markets typically lose momentum within five to six years. While this doesn't necessarily imply a bear market, it could mean a year of muted returns.
Further fueling his caution is the stretched valuation of the Indian market. Sharma acknowledges that India has consistently held higher valuations compared to most emerging markets, but warns about the risks associated with overvalued markets. He believes that investors should proceed with prudence, considering the potential for a slowdown in economic growth.
In contrast to his cautious stance on India, Sharma expresses optimism about the Chinese market. He argues that China has underperformed for an extended period and is now at an inflection point, potentially offering superior returns compared to India in the coming years.
Sharma emphasizes the need for caution due to weakening corporate earnings and moderating economic growth. He believes that GDP growth figures are likely to slow down due to a decrease in government capital expenditure. Despite these concerns, Sharma remains committed to his investment strategy of focusing on small and very small market-cap companies. He believes that large-cap stocks offer limited growth potential and prefers the higher risk, higher reward potential of smaller companies.
Sharma's strategy involves investing in a basket of 25 to 50 small and very small market-cap companies. He acknowledges the potential for losses within this segment, but believes that even during market downturns, a few stocks will deliver substantial returns, offsetting any losses from underperforming investments.
Sharma's outlook provides a valuable insight into the current market landscape, highlighting both opportunities and risks. While he acknowledges potential challenges for the Indian market, he remains optimistic about the long-term prospects of small-cap companies and identifies China as a market with significant growth potential.