It is commonly accepted that Shankar Sharma has a razor-sharp mind and a charming personality. He is also deeply knowledgeable about macro-economic factors and very articulate.
Unfortunately, despite his positive attributes, Shankar has not endeared himself to novice investors. The reason for this is because Shankar developed a bad habit of making doomsday prophecies every now and then.
Shankar reached his nadir when he confidently declared on 14th February 2014 that he was “100% sure” there would be a savage correction in the markets. His precise words were:
“Emerging markets are going to be down. I am 100% sure they are going to be down from wherever they are right now. This includes India. So, absolutely no doubt in my mind that India will be sharply lower in May and of course emerging markets will be at least 10% to 20% lower from where they are right now”.
Then, when the stock markets surged and Shankar realized that he had made a wrong prediction, he did a somersault and declared on 16th May 2014 that “India is in great shape and that the Sensex downside is capped”. His precise words were:
“Our fundamentals are the best of any major economy in the world” and “I don’t think then you are looking at any downside worth the name at all because like I said the economy being left behind is in excellent shape”. “I don’t think you are going to see a 16000-18000 level of index any time soon”.
This chameleonic attribute of changing stands at the drop of a hat has made novice investors wary of Shankar. Anyway, all of that is in the past.
Nitin Rao of alphaideas.in has now diligently reported that at the recently held Sohn India Conference, Shankar Sharma revealed his investment strategy and recommended two micro-cap stocks for investment.
Shankar’s investment strategy is unconventional and contrarian. He prefers companies which are facing temporary problems and whose valuations are depressed. He is also stated to prefer companies with a debt-equity ratio “greater than 5”.
Shankar recommended two micro-cap stocks, Kiri Industries and A2Z Infra.
Shankar described Kiri Industries as “a niche chemicals player which is growing its business, paring down debt and owns a significant stake in Dystar, one of world’s largest Dyes Companies”.
Kiri Industries is not a surprising choice because Shankar has earlier declared that he is bullish about specialty chemical stocks in view of the slowdown in China.
His precise words:
“As we have spoken also, the specialty chemicals space we have liked a lot. The beaten down infrastructure sector also we have liked a lot. We have seen it coming over the last two years that China because of the huge pollution problems has no option but to clamp down on chemicals. Globally, all chemical companies have problems on pollution. I think there is a G-20 meeting in August… So again, if you remember same thing happened in 2008 when China hosted the Olympics. They shut down industries to improve the air quality so that people from across the world do not see China as a polluting country. Exactly the same thing is now being done three-four months ahead of the G-20 summit. You are seeing plants get shut and chemical prices going up several times. I think it is a huge trade on a secular basis because India will be the beneficiary of production moving from China in the chemical space and that is a big macro shift which is happening already.”
Kiri Industries happens to be one of Shankar’s old favourites. His First Global recommended it (then known as Kiri Dyes) as far back as in December 2010 with a lofty target price of Rs. 1,000 even though the stock was then languishing at Rs. 421.
The stock is down 47% over the six years that have gone by.
(Kiri Industries’ chart – the peak is when First Global had recommended it)
It should be noted that Kiri Industries does not enjoy good reputation amongst knowledgeable investors.
Nooresh Merani, a technical analysis expert, described Kiri Industries as a “scam stake buy” and gave cogent reasons in support of his analysis.
The experts at the valuepickr forum are also circumspect about Kiri Industries. One person suspected that the “books appear managed” while another referred to several “red flags” in the annual report which have remained unanswered.
A2Z Infra Engineering also has a dubious pedigree. Old timers will recollect that there was great hype around the stock during its IPO in December 2010 because Rakesh Jhunjhunwala, the Badshah of Dalal Street, was a significant shareholder. The share was offered at Rs. 400 each.
(A2Z Chart since the IPO)
Today, A2Z Infra is languishing at Rs. 26, resulting in a colossal loss of 92% for the poor IPO subscribers.
Even Rakesh Jhunjhunwala sold his holding in A2Z at a steep loss.
So, prima facie, Shankar Sharma appears to have chosen stocks which require a dare devil attitude, with a penchant for taking risk. Whether novice investors possess such an attitude and whether they will benefit from Shankar’s recommendations requires to be closely watched!