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Small-caps will be among worst-hit if market gets into correction, says Shankar Sharma
Small-caps and banks will face the maximum brunt if the market goes into correction now, said Shankar Sharma, Vice Chairman and Joint MD of First Global. A 5-8 percent cut in the market can mean a 30 percent drop in stock prices, he said.
"2017 was the last time we saw some degree of a small-cap bull market. I think that was a 67 percent rally in 12 months. We have seen the small-cap index from April is up 50-52 percent. So what the whole year delivered in 2017 has been delivered in 6 months' time. So I worry about that, we know how brutal they are when they turn against you, we know how many funds got wiped out in 2018, so I am mindful of that risk,” Sharma elaborated in an interview with CNBC-TV18.
On banks and financials, he said, "Banks have been already hurting from relative underperformance and I continue to believe that in case there is correction, that (banking and financials) is the most vulnerable part of the market even now."
In terms of the US market, he said, “It became so easy to make money in the US markets. I am worried. From April this year we are up 55 percent, year-to-date it is 30 percent. From the first week of April, or let us say from the third or fourth week of March up until now, it has been just an amazing run and I worry about this."
Sharma expects a shakedown and advises investors to be extremely risk-averse at this point in time."We are participating, but we have bought insurance, we think it is time to be a little conservative rather than be the cowboy that one could afford to be back in March."
Sharma says portfolio construction is a "complicated science" and that just buying five stocks is not the way to make sustained money.
“Individually stocks have gone up 5-6 times in a matter of five months’ time. They have done so in India too but they have done so globally as well. In this period in which the NASDAQ has fallen 8.5-9 percent in a matter of 5-6 trading sessions -- let us say 10 percent fall in a matter of 10 days -- in the same period, you had stocks which have gone up 10-15 percent. That is where the balance of your portfolio skills come in."
First Published: Sept 11, 2020 1:58 PM IST
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