Shankar Sharma, the founder of GQuant Investech and a market veteran, believes the underperformance of the Indian market is more because of a slowdown in the economy and not because of issues like the collapse of the Silicon Valley Bank (SVB) and Adani-Hindenburg saga.
"The Adani Group or SVB was not the reason why the Indian markets have been somnolent in the last two or three months’ time. The reasons are more internal. The reasons are that there is a slowdown in the economy based on the GDP numbers that we have seen," Sharma said in an interview with ET Now.
Sharma pointed out that the market has seen a slowdown in consumer spending and a slowdown in the economy.
"Rural economy has been hurting in any case. It was urban spending which was propping it up and that has also started to slow down. That is where the market started to get a bit jittery. It is not Adani, it is not a foreign bank contagion," Sharma told ET Now.
Because of the current economic situation, Sharma believes India will not see a broad bull market.
"I do not think any of us should hold out hope that we are going to see a broad bull market in India anytime soon. We are going to see very patchy markets in which a reasonable part of the markets will be flat or even down, while small pockets of stocks whether in the Nifty or below the Nifty will be doing well and that is really the skill of your investment acumen will be tested this year," Sharma said.
Sharma also pointed out that strong bond yields in the US and India are also a factor that has hit the equity market. Since bond yields are very less volatile than equities, average investors find them attractive in the current situation.
"In India, the yields are really mouth-watering, to say the least, which provides you low volatility returns for an average investor. Again, that is a good reason to attribute the equity markets’ underperformance in India. Adani or the foreign bank thing are a very temporary phenomenon, it is more fundamental and which is that rates are very attractive and people are at this point choosing fixed income over equities," said Sharma.
Sharma does not think the current crisis in the US banking space can be equated with the 2008 crisis. He said there was a large-scale collapse of the financial system in 2008 which encompassed not just lending banks but investment banks and brokers too.
"It was a completely different order of magnitude. Compared to that, we would take SVB or the Signature Bank collapse any day," said Sharma.
He explained that individual events of banking failure are not a big thing as there can be routine failures in banks.
"There can be routine failures; in India too, in 2000 Global Trust Bank failed. In the ‘90s also, a couple of banks failed. Those are individual events. In the US, there have been a lot of bank failures. There are community banks. The US is a huge country like India and there are small banks serving the local community. They keep going burst if you look at the data," said Sharma.
He also pointed out that now regulators have learnt to act very quickly so a repeat of 2008 is unlikely.
"There is always learning with a new event. So, 2008 will not get repeated by any stretch," said Sharma.
Talking about the Adani issue, which rattled the domestic market in the last month, Sharma said Adani was a non-issue for any serious investor in the stock market.
"We made it an issue beyond what it deserved to be," said Sharma.
Sharma said Adani Group is a large group, but it is still a single group and one group cannot be the representative of the entire market, no matter which group that is.
He underscored that there were governance problems with Infosys and Reliance Industries in the past. Sun Pharma also had a series of problems in the last three-four years.
Disclaimer: This article is based on an ET Now interview. The views and recommendations given in this article are those of the expert. These do not represent the views of MintGenie.
