Shankar Sharma reaffirms bullish view on small-caps; warns IPO investors of overpriced listings

Shankar Sharma, Founder of GQuant Investech, reiterated his bullish stance on the small-cap space, stressing that he continues to actively track and meet companies in this segment. In an interaction with Business Today on Monday, the market expert stated that he remains fully engaged in identifying opportunities and is scheduled to meet one or two Indian companies during his upcoming visit to India.

Sharma emphasised that his caution on broader market conditions has not stopped him from deploying capital. Over the last 12 months, he has invested consistently and even participated in a recent preferential allotment. According to him, public perception often assumes that a negative market view means no investments are being made, but his actions reflect otherwise.

Sharma described small-cap investing as a complex and demanding process. While it may appear attractive from the outside, he noted that the real experience involves significant volatility and emotional strain. He pointed out that he currently holds a stock that is down 50 per cent, yet he has not sold any shares. The reason, he said, is not a lack of liquidity alone but his belief that the company may eventually recover. However, he acknowledged that selling large stakes in small companies can be practically difficult. This, he said, is a core risk inherent to the segment.

He cautioned that small-cap investing is not suitable for new or average investors because of the heightened risks involved. Professional investors, whose job is to take risks, may still benefit, but even they must expect setbacks.

With a portfolio of 25–50 companies in the select segment, Sharma said it is almost inevitable that 10–20 will cause substantial pain. He noted that company narratives are always compelling before capital is invested, but management stories often change afterward -- something he has witnessed repeatedly over the past 30–35 years. Still, he remains convinced that small-caps will continue to drive India's market performance ahead of large-caps.

On initial public offerings (IPOs), Sharma said companies frequently list at unjustifiably high valuations, attracting investors who commit funds without a proper understanding. He added that IPO returns have generally been weak. "Broadly speaking, IPO investing does not make money," he said, adding that the current phase reflects the same trend.