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Don’t see end of bull market within the next 12 months: Shankar Sharma

Parabolic returns belong to the really unloved areas of the market; real estate is one such area. DLF and the others have done phenomenally well. Building materials is another big theme. If real estate does well, one may have a stock like . The liquor and underwear stocks are the other two areas for slum to penhouse returns, says Shankar Sharma, Vice Chairman & Jt MD, First Global.

Do you think the number of big IPOs hitting the market is making people take money off the secondary market to the primary market and that is affecting the market?
The number of issues hitting the market and the amount of capital that companies are looking for does raise the question whether a lot of the secondary market liquidity will get sucked into the primary market and which will create some kind of void in the secondary market. Usually, the secondary markets precede a primary market rally by like maybe 12 months or so so. The bull market starts in secondary and then the primary market boom starts maybe 8, 10, 12, 15 months later. We are exactly at that point from April of last year and about 14-15 months into this bull market and the slew of offerings is staggering to say the least.

So if I were to look at even a remote problem area that would be the huge rush of QIPs as well as of the primary market issuances. That apart, we are still on a very good wicket on the basis of two-three factors. I do believe we are due for some degree of correction or at least not a correction in terms of price, at least in terms of time. We have gone up phenomenally in a very short span of time. The markets are taking a breather and quite rightly so. But one should not think that it is the end of a bull market or anything of that sort. That day will come but definitely not in the next 12 months at least. It can best or it worst be a sideways to a slightly down market in which still plenty of money will get made on an individual stock basis.

Let us analyse where there is risk versus where there is opportunity in the market. If I were to ask you to give me three buckets and categorise sectors or stocks within that market cap agnostic, where do you think there is no return? Where do you think there is going to be a volatile return and where do you think there is going to be parabolic return from here onwards?
The no return is pretty simple and that is the guys that we have studiously avoided for the last 15-18 months which is the Levers and the Nestles and ITCs and the Asian Paints of the world which are no doubt great companies but they are not great stocks, at least they have not been great stocks for 18 or 24 months.

They had great times in 2018-2019 when the rest of the broad market was not doing too well. These were the stocks that did reasonably well relative to the rest of the market and that created a story in the market that one can buy these companies at any point in time and one can make 20% per year or whatever. This is total nonsense. You have to go back in history and see that there were long periods of time when they did not deliver any returns at all. I think we are right in that middle of that period when these stocks are not going to make any significant money.

In fact that is what I had said to some other journalist that a Lever or Asian Paints is not the kind of stock that is going to get you a penthouse in South Bombay. If you live in that pent house, it will prevent you from going down to the street level. So the first question is easy. Parabolic returns belong to the really unloved areas of the market; real estate was one such area we bought quite a bit in the March-April period. In our schemes, DLFs and the others have done phenomenally well.

Building materials was another big theme that we thought would again be in line with real estate which was bombed out for a very long period of time. Some of the money made in the stock market seeps into the real hard asset economy, which is real estate. If real estate does well, one may have a stock like Kajaria Ceramics. They have done very well for us as well.

When people make money, they start drinking quite a bit. So we bought the liquor stock that has done very well for us as well. So, yes we have been unconventional in the last four-five months buying multiplex, real estate and a few liquor stocks. We have also been buying a few underwear stocks. When people stay at home, they do not buy that much underwear right but when they start going out, one can assume that they are going to be wearing more underwear than in the last 12 months. So let us just say that we have been a little unconventional in our strategy and that has done very well for us. Rupa and Dollar have been decent stocks for us. Those are the parabolic return areas of the market.

Other than that, the steadier returns are obviously from the pharma pack. They have corrected a bit in the last few months but they have done very well in the preceding 12 months. But again from this point, they will not get you from the ground floor to the penthouse yet.

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