Ace investor Shankar Sharma believes India's small- and mid-cap stocks are better placed to capture the growth opportunities emerging from global artificial intelligence (AI), data centres and technology infrastructure, while large-cap stocks continue to struggle with a lack of fresh triggers.
Speaking in an interview with NDTV Profit, Sharma, the Founder of Gquant FinxRay, said the market may appear subdued on the surface, but there is significant momentum underneath, particularly in smaller companies. He pointed out that while the Nifty 50 has remained relatively stagnant, nearly half of the constituents in smaller indices have been replaced in recent years, reflecting the emergence of newer growth companies.
“The small caps reflect the inherent growth ahead of them,” Sharma said, arguing that large caps appear cheaper because their earnings growth could disappoint going forward.
Sharma said he continues to favour companies linked to the AI and data-centre ecosystem. He believes the global AI trade is unlikely to fade anytime soon, with the US continuing to be the primary driver and Indian companies increasingly benefiting from the resulting infrastructure spending.
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According to Sharma, the opportunity extends beyond traditional technology companies to what he calls “infrastructure tech” businesses — companies supplying cables, optical fibre, electrical equipment and other components required to build and upgrade data centres.
Importantly, Sharma believes the data-centre boom will not be a short-term phenomenon. Rapid technological changes mean existing facilities will require repeated capital expenditure to adopt newer technologies and improve processing capacity, creating a multi-year opportunity for suppliers.
He also said he has increased his exposure to small-cap opportunities and had identified the segment as a preferred area for investment earlier this year.
While acknowledging that valuations and inventory gains could pose risks in the near term, Sharma said he sees greater potential in growth-oriented small caps than in large-cap stocks simply because they are “cheap”.
For investors, his message is clear: don't mistake low valuations in large caps for growth, while the real earnings momentum may increasingly lie in the broader market.
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