'You can't exit smallcap stocks when they are falling': Shankar Sharma cautions investors

Market veteran Shankar Sharma says investors should be prudent and risk averse and need not be blind bulls when dealing with smallcap stocks. Blind bulls, he warned, get slaughtered at some point, especially in the smallcap pack. In an exclusive interview to BT TV, the Founder at GQuant Investech said the disparity in the performance of broader market and large caps indices is huge, which raises questions over its sustainability.

Sharma, who himself has been bullish on smallcap stocks for the last two-and-a-half years, said smallcap investors who did good in terms of diversification and risk management during the last two-year period might have been rewarded with 30-50 per cent returns in each of the two years.

"When you double your money in two years, I can tell you with my experience, those kinds of breakneck returns are not replicable every year. Let us be very clear about it," Sharma said in an interview to BT TV. Sharma said the returns by smallcaps, especially in the last 12 months, were beyond his expectations. Post such returns, one should be prepared for relatively modest returns, he said.

Data showed Sensex has climbed 10.47 per cent year-to-date. The BSE Smallcap index has jumped 28.91 per cent during the same period, an outperformance of 18.44 percentage points.

Sharma said while being a bull he has always cautioned that one can lose money a lot easily in smallcaps than largecaps. Thanks to the bewildering variety and range of trading restrictions imposed by stock exchanges such as ASM and GSM, Sharma said exits in smallcaps are extremely difficult when they are falling.

"You can exit when they are rising. You can't exit when they are falling," Sharma said adding that "Wealth from smallcap stocks should not be enjoyed on papers. Please convert the paper wealth to real wealth from time to time on the way up. You won't be able to do that on the way down."

Sharma said while an investor should be is prudent to take money off the table, it is also important that they don't go rushing to something else to buy.  

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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