What Shankar Sharma Plans To Do In The Current Market

A mature global bull market like now will face headwinds from higher rates and geopolitical issues and the single biggest determinant for valuations will be the cost of capital, according to veteran investor Shankar Sharma.

Since the cost of capital is slated to inch higher, the PE multiples will get compressed, Sharma told BQ Prime’s Niraj Shah in an interview. While he admitted to losing money in the current market, he said his losses are “restricted” when compared with that of an average investor.

Sharma cautioned that the U.S. is in for a hard landing with the unwinding of easy-money policy being a painful long journey. But he will use that as an opportunity to buy stocks that can last in the portfolio for the next three to five years at “palatable” valuations.

Stock Valuations

Sharma expects valuations in India to come down. Contract manufacturers trading at 100 times their earnings in India compared with 10-12 times in other markets like Taiwan is baffling, he said. That can’t last long and investors will realise that paying a premium multiple for standard growth is “not a good idea”.

“A grocery chain in India where a [Rs] 1,400-1,500 crore profit trades at [Rs] 2.5 lakh crore market cap is absolutely insane and ridiculous,” he said. “No metric can justify that. You will see multiples collapse”.

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