Stay away from cheap stocks, place bet on costly stocks. Report.



Stay away from cheap stocks, place bets on expensive stocks: Shankar Sharma.

Beyond the price-to-earnings (PE) ratio of a stock, it is considered expensive. The PE ratio shows the amount an investor is willing to spend to earn one rupee from a share. Book knowledge states that investors should stay away from stocks with higher PE ratios. But the advice of Shankar Sharma, a veteran investor in Dalal Path, is the opposite. "Investors should buy shares with higher PE rather than lower PE," he said.

Actually, this trend is showing in Indian stock market for some time. Shares considered expensive are attracting investors. Compared to the beaten stocks, their prices are also rising more.

Many analysts say that due to the recent change in policies, such situations have arisen in the Indian economy, in which only big businesses are showing growth. Small and medium businesses are lagging behind. Shankar Sharma, who believes in Contra Investment Theory, believes that the chances of change in this situation are less now. He said, "The message of the General Budget 2020 is clear. It says that one should not bet that India is going to grow at the rate of 7 to 9 percent soon".

This veteran investor of Dalal Path said that big companies are growing. In a special conversation with ET Now, Sharma said, "We have to lower our expectations about India. Everyone has to get used to the growth rate of 5 percent. The government is not going after growth."

They believe that polarization is taking place in the stock market as well, because businesses are stalled on a large scale. Sharma said, "These situations have arisen when small businesses are growing rapidly in developed countries like America."

Shankar Sharma is the Vice Chairman and Co-Manager Director of First Global. They are not affected by the performance of domestic markets in the year 2019. He said, "India remained a bad market last year. Whereas, the world recorded a 40 per cent gain, the Nifty 50 index rose only 8-9 per cent."

However, Sharma sees value in the market. But they are not expecting a boom. They are not too enthusiastic about foreign investment. He said, "Foreign investors are not only investing in India, but are investing money all over the world."

In January, foreign portfolio investors invested Rs 12,000 crore in the Indian market. He remained a net buyer for the fifth consecutive month. The market was relieved by tensions between the US and Iran. Trade deal between US and China is also good news for the market.

Sharma said that he would not shy away from paying premium prices for companies with quality and good corporate governance. He said that the return of the industrial sector does not appear to be happening in the near future. According to Sharma, the market and the economy have nothing to do with each other. He said, "The company will not perform well due to good intentions, money will be better. Steel, cement and infrastructure sector are nets of value, which can be trapped. Investors should think well before investing in them."

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