Shankar Sharma views: Shankar Sharma, cofounder of First Global, said that a bad phase has passed for most smallcap companies. They have touched their lows 15-20 days back. Sharma has said this in a report in Economic Times. Regarding the increase in interest rates, Shankar Sharma said that smallcap companies suffer more due to this.
Overvalued stocks will take a hit
Sharma said, “We have gone through such cycles. We know that rate hikes have comparatively less impact on large companies as they do not have much debt burden. They generate free cash and we all understand that. But the reality in India is that a hike in interest rates will primarily hit the overvalued stocks in the market.”
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Most Smallcap Stocks Aren’t Expensive
He said that there are two types of stocks in the overvalued market – largecaps and new age listings. On the other hand, smallcap companies are not overvalued. If I look at the smallcap companies as a whole, I do not find stocks that are trading at 40 and 50 times the earnings. I am trading on single digital multiples. He said, “It is not expensive. But Hindustan Lever is still expensive, Asian Paints is still expensive, HDFC Bank will also be logistically expensive.”
Stocks of new age companies are still expensive
Shankar Sharma said, definitely the stocks of News Age companies are expensive. So, even though traditionally a rise in interest rates will put pressure on smallcap companies, mainly largecap and new age listing stocks, not smallcaps, will outperform the market.
Bad times for Smallcaps
Regarding smallcaps, Sharma said that the bad phase has passed for most of the companies. They have actually touched their lows 15-20 days back. Since then the recovery has been good. Smallcaps in India started showing rally from 10 days back and since then the bad phase has passed for smallcaps. “I don’t think we will see a 20-30 per cent decline in smallcap companies,” he said.
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