In the past year, Indian stock markets have held strong compared to global peers. Shankar Sharma, joint managing director, First Global, tells Joydeep Ghosh that India will continue to outperform because of pent-up demand that will drive consumption and negativity around China. Excerpts:
FAANG stocks have been doing badly for quite some time. Do you see things worsening for them
The FAANG story was over last year itself. Now it’s more of the same. If you look at Amazon, its key market is the US, which is seeing some degree of slowdown. It does not have a significant presence in other markets. So, it was going to have a problem. Facebook has been hurting since last year itself. When there is recession, people will cut back on expenses and advertising. And I don’t think, things are going to revive for them in a hurry.
How do you see things panning out for India since it has held its own despite the global meltdown
So, here’s the thing. Performance relative to other markets is always a cyclical phenomenon. And the US markets did far better than India in the last 10-11 years — say, from 2009-10 onwards till last year. US was off the charts while India was a very poor performer, relatively speaking. In dollar terms, it was a zero-returns market for 10-11 years. In absolute rupee terms, it returned 4-5% — lower than fixed deposits. Now India’s outperformance will last for some time because these are long-term trends. And whichever way they go, they go for a long time.
Is there a decoupling?
No, there is no decoupling. It is simply cyclical. From that perspective, we can say that the US had decoupled from the rest of the world in the last 10-11 years. Just because decoupling, as a term, suits us right now we are saying it. Markets are cyclical and something that underperforms for a long time will do well in the worst period and vice versa.
Why do you think India will do better?
Since 2013-14, India’s GDP growth was on a decline and we were growing at 5-6%. Then, there were shocks to the economy due to the GST rollout and demonetisation. So, there was already a problem and with Covid, there has been a huge decline in consumption everywhere. Now, there is a cumulative pent-up demand from a billion consumers. That is now coming into play. And, at the same, by some fortunate confluence of events, China has become a pariah in the global arena, which is playing a big part in the feel-good part about India. Not to say that foreign institutional investors are demonstrating that with inflows, but the general perception relatively is that India should be looked at from a manufacturing standpoint since China is facing a lot of negativities. And due to these two factors, India will do well.
So, you aren’t making any sector calls?
I am bullish on India relative to any other market for the foreseeable future. India stands to gain 100% from this global meltdown.
The IPO pipeline for the coming months is reasonably strong. How do you see this market performing?
I think the IPO market will be selectively good. If new-age companies want to ram down their IPOs, they won’t get much success because investors have now become wiser. There is no need for most new-age firms to get such inflated valuations. The pricing of these IPOs was so exorbitant and now that they are 50-60% down, people are saying they look good. But that’s nonsense. There are companies that had no business having market caps of Rs 1 trillion. Now, they are at Rs 50,000 crore, people are saying ‘oh, it is cheap’. Firms with revenues of Rs 2,000-3,000 crore and negligible profits should have market caps of Rs 2,000-3,000 crore. These are dressed-up firms with nothing fundamentally different from what has already been done. They are being made to look optically different now they are down significantly from their IPO prices.