‘India is in a Bear Market’: Shankar Sharma's Warning on SIPs, FIIs & Indian Stocks | DeKoder

Summary

Investor Shankar Sharma describes Indian equities as being in a bear market. He argues that the decline has lasted about 2½ years, unlike a brief crash such as the COVID sell-off. He says the Nifty and Sensex are down roughly 10–15% from their peaks in rupees, but about 20–25% in US-dollar terms, which he considers the more meaningful comparison for investors.

In 2024, Sharma said investors should not expect much from the Nifty for five years. He sees no basis for assuming the next 2½ years will deliver 30% annualized growth.

Market conditions and flows cited in the interview

The host’s opening figures include:

• A roughly 13% year-to-date decline in the Nifty.
• The rupee down about 8% against the dollar.
• Nearly half of liquid stocks more than 20% below their peaks.
• Small caps up about 8% and mid caps up about 17%.
• Domestic institutions buying around ₹75,000 crore in September.
• Margin funding at a record high relative to market size.

The interview gives two different figures for foreign selling in September: the opening cites about ₹2.7 lakh crore of foreign outflows, while a later exchange cites about ₹36,000 crore. The discrepancy is not resolved in the subtitles.

Sharma says domestic institutional buying does not negate a bear market. In his view, most capital is concentrated in large caps, and gains in small caps cannot represent the whole market. He characterizes domestic flows absorbing foreign selling as a potentially harmful transfer of wealth from Indian household savers to foreign investors.

SIPs and investor behavior

Sharma calls SIPs an excellent product for brokers, wealth managers, and asset managers, but argues they have not served investors well. He describes post-COVID SIP returns as “abysmal” and criticizes backtests that assume investors always keep contributing, buy more at market lows, and never sell at highs.

His point is that real investors have financial needs and emotional reactions, so idealized “lab conditions” may not reflect actual outcomes.

Sectors, themes, and company competitiveness

Sharma says a bear market can still contain strong-performing pockets: he estimates that 20–30% of stocks may rise even when 70–80% fall. He identifies areas he views positively, including:

• AI infrastructure, including data-centre-related components, “picks and shovels,” and supporting equipment such as transformers.
• Power and utilities.
• Select pharmaceutical CDMO/CMO businesses.
• Smaller, innovative companies investing in technology and R&D.
• Manufacturing, infrastructure, and capital goods; the discussion also mentions metals and defence as themes.

Sharma does not think India must dominate every part of the AI value chain. He sees an opportunity in infrastructure and supporting businesses, while saying the top end of AI may be led by the United States and China.

His broader criticism is that many Indian companies have relied on domestic markets and have not built global brands or invested enough in future growth. He cites Bajaj Auto as an exception and contrasts Indian companies’ international reach with Chinese companies such as Huawei, Xiaomi, and Haier. He also says India’s domestic consumer market has limits, pointing to uneven consumption in a K-shaped recovery.

Global investments and instruments mentioned

Sharma describes his own portfolio and trades, emphasizing that these are not recommendations:

• His largest position was in the United States, after increasing its weight over the preceding 6–8 months.
• SpaceX: he says he bought it weeks earlier after a correction from IPO-related hype; he also refers to Starlink.
• Brazil, Colombia, Chile, Poland, Greece, South Korea, and Taiwan.
• Oil.
• US dollar: he says he is long.
• US Treasuries: he says he was short when yields were around 4.2%, and that the trade had worked well.
• He recalls a Brazil alert from FinXRay ahead of an election; he says the market rose 10–12% on election day. The timing is not specified.

He also stresses that a willingness to take a loss and move on is an important part of risk management.

Framework and explicit views

• Assess market returns in a common currency: Sharma says to compare Indian equities with the US dollar or euro, rather than relying only on rupee returns. He cites 20% as a general bear-market threshold and says 25% is deep bear-market territory.
• Look at breadth and market segment: Do not infer that the whole market is healthy from strength in a minority of stocks or in small caps. Sharma says the Nifty and Sensex remain the main benchmarks.
• Separate broad market weakness from selective opportunities: He expects some companies and sectors to do well even during a bear market, particularly AI infrastructure, power, and select pharma businesses.
• Focus on global competitiveness: He argues that companies should invest in technology and R&D and pursue international markets instead of relying only on domestic demand.
• Manage losses decisively: He says investors should be prepared to accept losses rather than hold on indefinitely.

FinXRay

Sharma says he created GQuant FinXRay for his own research workflow and later opened it to users. He describes it as a tool for tracking company figures, announcements, and price action; monitoring global markets—including currencies, bonds, interest rates, and indexes—and surfacing areas that may warrant attention. He says it offers concise IPO information and costs roughly ₹200 per month.

He explicitly says FinXRay is not a buy/sell recommendation engine. It is meant to help users identify areas to research, not tell them what to buy or sell. He also says his disclosed portfolio positions should not be treated as recommendations.

Policy proposal

Asked what he would tell the finance ministry for the next 12–24 months, Sharma proposes lowering the tax on new FII investments to 20% and raising taxes on domestic investors by 5 percentage points. He argues this would encourage foreign capital and discourage household savings from flowing into risky equities. This is his stated policy view, not an independent assessment.

Disclosures and cautions

Sharma’s portfolio and trades are presented as his own and not as recommendations. He says FinXRay is not investment advice or a recommendation engine, and expresses the view that investors should learn to make their own decisions. The subtitles do not contain a separate formal video disclaimer.

Presenters and sources: Yashodhara Bajoria, interviewer/host; Shankar Sharma, investor and founder of GQuant. Source: Value for Money on DeKoder.