Small Caps Are The Ultimate Wealth Creators In India, Says Shankar Sharma

The path to wealth creation or achieving the status of the richest is through investment in small caps and not large caps, according to GQuant Investech's Shankar Sharma.

Currently, it is observed that the broad and robust bull market is particularly favouring small caps, he said. "The stance of being a small-cap bull is maintained, regardless of potential fluctuations."

"The way to become rich, richer or the richest is only through small caps and not through large caps," Sharma, founder of GQuant, told NDTV Profit.

"I don't believe small-cap valuations are too high or demanding right now. Many stocks have reasonable numbers, like mid-teen or low 20 multiples, which aren't overly expensive for this category," he said.

Large-cap stocks in India may experience occasional bursts of enthusiasm, mainly due to the majority of funds being invested in them. However, the expectation is that significant profits might not be generated from these large-cap investments, he said.

Over the past several years, the belief has been consistently asserted that small-cap stocks will outperform large caps, and this assertion has indeed proven to be accurate, Sharma said.

"I think India is a land of small caps and will continue to be so."

The most uncertain aspect appears to be the post-election government policies, particularly in India. The subsequent fiscal policy is crucial in determining market performance; the primary driver of India's growth has been government capital expenditure, according to Sharma.

If there is a reduction in government capital expenditure to address the fiscal deficit, the figures allocated for capital projects, such as railways, roads, and bullet trains, are likely to decrease, Sharma said.

Infrastructure spending serves as a substantial multiplier for the overall economy, playing a pivotal role as the driving force for growth across various sectors, including employment and downstream industries like steel, wood, plywood, or bricks, he said.

"If that is dialled back, which I believe the government is going to do, then we could have a bit of a problem going into FY25 umbers,"  Sharma said.