Shankar Sharma‘s USP is that he is clear-headed and forthright in his views. Whether one agrees with him or not is a different thing. But nobody can accuse him of trying to obfuscate issues like some of his peers do.
Shankar Sharma‘s comes clean on his stock portfolio picks and adds some perspective as to why he likes certain sectors and dislikes others.
Shankar Sharma makes his dislike for the infra sector quite plain. He points out that on account of the high capital requirements of the industry, infra companies are required to frequently raise equity capital and this leads to tremendous equity dilution and destroys shareholders wealth. The cash flows of such companies is generally negative and they have very poor returns on capital while the EV/EBITDA is still pretty high relative to their poor ROCs.
Shankar Sharma points out that most of the infra stocks are now at levels which they were in 2006 or 2007. He cites the example of Jaiprakash Industries which is down to Rs 92-93, the price it was at in the beginning of 2007. He also cites bellwether stocks in the sector such as Larsen & Toubro which have gone nowhere and are under-performing quite savagely.
Shankar Sharma continues his preference for the banking sector. He says banks have reached a price level at they have started looking attractive.
Shankar Sharma emphasizes that stocks like IDBI and UCO Bank are off maybe 25-35% from their highs and do not have much downside even if they do not become out-performers in the near future.
Shankar Sharma also emphasizes that his love affair with the auto sector (see Shankar Sharma’s Stock Portfolio Picks) continues. His previous two stock picks Bajaj Auto and Tata Motors returned huge profit. He says the temporary fall or under-performance of recent months seen in auto stocks is nothing to be worried because the auto sector still continues to look very good and within the overall sectoral pattern and that he still would put his money in autos.
Shankar Sharma has added another name to his list of favourite auto stocks – that of TVS Motors. He says that “There are a lot of possibilities on the upside for TVS Motors by way of margins”. Even Mahindra & Mahindra looks okay, he says.
The other sector that Shankar Sharma is bullish on is the Pharma sector. He continues to recommend Ranbaxy as his stock pick in the pharma sector despite the adverse news flow for Ranbaxy relating to the US FDA problem. He expressed confidence that the USA FDA problem will get sorted out and Ranbaxy will be back as a market favourite. Shankar Sharma also indicated Dr. Reddy’s Labs, Sun Pharma and Lupin as his top stock picks in the pharma sector.
Shankar Sharma was, not unsurprisingly, not bullish on Reliance and the entire energy space though he was quite gung-ho on the oil marketing space as they did very well post the decontrol announcement.
He was quite neutral on the metal stocks & pointed out that the price performance of core metals versus the price performance of the companies that make those metals or those commodities was not necessarily very highly correlated. They were correlated in a loose way.
Shankar Sharma emphasized that the stocks of the metal companies like JSPL, Hindalco and Sterlite had remained more or less in a trading range and had not done much. He was emphatic that he was very circumspect on the metal sector and would not be putting any money into those stocks.
Shankar Sharma has always been contemptuous of the real estate stocks. He said that if one wants to be in that space, one should buy direct real estate rather than the stocks of real estate companies. He explains that the opaqueness about the operations of these companies together with the rampant use of unaccounted money in the sector makes his uncomfortable. These stocks have never made any money for anyone except the promoters.
If one looks at Shankar Sharma‘s investing strategy, one can see that it is really common sense driven. He has confidence only in those companies that are generating positive cash flows. He makes it clear that he is neither a bull nor a bear but is a realist who makes his strategy based on what the scenario looks like. Shankar Sharma calls himself a “conservative” person where stock markets are concerned and that is why he is perceived as being bearish. “Stock markets are no place to be very brave” he says and adds that an investor has to more scared than being otherwise.
Shankar Sharma‘s conservative investing style is very appealing and not very unlike the investing strategy of the other master investors (see Rakesh Jhunjhunwala, Ramesh Damani & Raamdeo Agrawal’s Investment Tips & Techniques). All sensible investment strategies are focused on capital preservation first and capital appreciation second!