Shankar Sharma, the Vice Chairman and Joint MD of First Global, has a wide following in India's stock market. When the markets witness a sharp fall or there is a bubble in stocks, Sharma has often predicted it in advance. Unlike other fund managers who present a guarded view, Sharma is vocal in his criticism of government policies and politicians. One should read between the lines to understand Sharma's sarcasm, which he uses to convey his contempt at the recent stock market rally that has surprised the streets. Sharma gave an email interview to Business Line.
Has excessive pessimism in the stock market corrected now?
Whenever you get a vertical fall in the market, you will see some degree of recovery. Such market recovery is technical and not fundamental. All global equity markets have bounced globally. Still, the fact remains that India has underperformed the global equity rally with a high margin. This is probably as Covid-19 cases are still on a rise and there is immense pressure on the hospitals.
Why does every announcement by the Modi government always come under so much criticism in the market? Agri reforms don't matter?
It is not true. In fact, the markets and India's corporates have appreciated all reforms and packages announced by the government. There has been no criticism at all.
No fund manager has come on television or written articles in any newspaper criticizing any of the packages and reforms announced by the government. There is genuine and widespread appreciation of the policies of this government, the likes of which I have never seen before. Everybody has been more supportive and appreciative of this government than any government in the past 30 years. Few isolated voices of criticism should not be blown out of proportion.
Experts came up with doomsday commentary after demonitisation. Don't you think the Covid related GDP crash too is not permanent?
Demonetisation was a very bold step, and its benefits need to be seen over a longer period of time. There will be massive benefits without any doubt. People have become very impatient in general in today's age. But we need to look back and see the reforms that were done in the 50s 60s 70s 80s and 90s, they all bore fruit only 20 to 50 years later: Indian Institute of Technology and Indian Institute of Management did not make India a tech and management source in five years. It took 30 to 50 years.
Rajiv Gandhi's far reaching reforms on telecom and tech took 20 years to bear fruit. Manmohan Singh's reforms took at least 10 years. And we expect demonetisation to deliver instant results! Behaviour changes from cash to digital are taking place and these will take India to an era of transparency never seen before. We need to be patient. I liken PM Modi to somebody like Jeff Bezos, who was criticised by fund managers and analysts for excessive capex and cash burn. But he ignored them, took bold bets ( building warehouses, cloud, India bet). Today Amazon is a trillion dollar company. PM Modi is doing the same. He should continue to focus on bold reforms. In the short run, every decision can be questioned. But like Bezos, he is building for the future, not just 5 years. Of course, GDP contraction is not permanent. Economy will recover sharply. Within no time things will be back to normal and people would have forgotten this episode.
What is your view on India's PSU sector? You think we have largely passed the banking crises?
I think public sector units offer good opportunities if you do your research properly. They are better managed and do not have political interference like in the past. This itself is game changing. We should raise the value of these companies before thinking of selling them as strict valuations are not recommended. We have passed the phase of a banking crisis. Banks with solid deposit franchises will weather the crisis with the greatest of ease.
You said you had reduced your exposure to India. Are you changing your view? Which country do you like for investing?
Our views are not permanent or fixed. We have increased our exposure to select sectors and stocks from April 1 and continue to believe that they have good return opportunities. India has been a great story for the past 25 years. It will go through good and bad phases but the long-term trend remains buoyant. In investing, one must ride out short term problems.
India-China conflict can impact markets in the long term?
While there are concerns, I am sure that our capable leadership will deal with it as effectively as it has dealt with all such crises in the past few years. During Doklam similar sentiments were expressed but do we even remember it now? During Kargil too exactly the same situation existed. But unlike the UPA, the NDA government is excellent in dealing with such situations and throwing out the enemies.
What is your view on the global dollar? Has Fed's intervention in the bond markets changed its course and how does it impact the emerging market currencies?
We see some short term weakness in the US dollar versus other currencies. The US dollar has been the strongest currency in the world for several years now and it is time for a bit of correction to that. If it happens, you will see an incremental interest in emerging markets and commodities. I do not think one should be too worried about November elections in America.
Do you think that there should be larger exposure to precious metals given the liquidity? What do you think about interest rates in India?
We have around 20% allocation to gold in our investment funds and while there will be short term corrections, we continue to remain optimistic on the yellow metal for the foreseeable future. Not a recommendation for people to go and blindly buy gold. It is only our view of the present moment.