Hermes boot Entering a new year, Shankar Sharma, vice chairman and joint managing director at First Global, the multinational securities house, tells Puneet Wadhwa investors should ignore all the noise around elections, policies of global central banks, global macros, etc, and spend some time in researching stocks, before doing bottom up selection.The rest of the world even those hit badly between 2010 and 2015 is seeing upward revision in GDP growth rates; India has seen negative revisions.I haven't seen India buck the global growth trend in 30 years.The markets (large caps) are reflecting this. Global GDP is growing at 3.8 per cent (annually), the strongest in a decade, while India is growing around five per cent or so (old series), the lowest premium over global growth in two and a half decades. Disappointing, to say the least.Going ahead, if we do not compare with global peers, Indian markets will do well.On a relative basis, however, the large caps will remain laggards, compared to global benchmarks.What about mid and small caps?I look at India as two separate markets. One that comprises large caps and the other that has the mid and small caps.
I continue to believe it is the second set that will remain absolutely rocking.The small cap story remains strong and they remain the best equity class across all global markets.Indian small caps look terrific; large caps look average. I have held this view for the past three years and nothing compels me to change this.Investing in 2018: Stay safe, stay alertWhere is this optimism for the small caps coming from?Two reasons. First, on a relative basis, Indian small caps are less exposed to things like interest rate tightening and other macro factors, which in India appear to be worsening.The inflation outlook now isn't benign. Oil prices, too, are headed north and can move up $10 to $15 a barrel at least.All these things will crimp the Reserve Bank of India's ability to tinker with rates.We do not expect rate cuts at all for the next 12 months. On the contrary, there could be a rate hike.Large caps are susceptible to macro changes, good or bad.For small caps, macro factors don't really matter much, as they are not exposed much to the vagaries of global macros. They are more driven by micros of their own businesses or own sectors.Over the past few years, most small cap business owners have realised it is better to run a good and clean business, than do things to please the markets, as was happening in 2006 2007, when people were doing business for vanity metrics, such as order books, hermes stocks and you are set for a lifetime doing business without much cash flow, etc.This has changed and good companies/promoters are generating a healthy return on equity of over 20 per cent.
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