Some stocks will fall 90% in next bear market, warns Shankar Sharma

A shadowy threat is lurking beneath India’s bull market which ace investor Shankar Sharma believes to be the single biggest threat - overcapitalization driven by the insatiable greed of merchant bankers and operators.

“Single biggest threat to this Bull Market are greedy Merchant Bankers & Operators, exhorting foolish promoters to raise excess capital, permanently destroying balance sheets via over capitalisation,” Ace investor Shankar Sharma wrote in a post on X.

He reiterated that these are the stocks that would fall 90% in the next Bear market.

At issue lies in the temptation for promoters to raise capital beyond immediate needs in times of market optimism, largely persuaded by merchant bankers and operators. This is likely to result in permanently scarred balance sheets burdened with the weight of overcapitalization.

Sharma believes when the tide turns and the market enters a bear phase, these shares of companies laden with excess capital may plummet up to 90%.

Meanwhile, the Indian stock market benchmark indices, Sensex and Nifty 50, plunged over half a percent on Tuesday along with witnessing strong bouts of volatility.

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The selloff was intensified in the broader markets as the Nifty Midcap 100 and the Nifty Smallcap 100 indices cracked over 2% each.

The India VIX index, which measures volatility in the Indian stock market, has surged nearly 35% in just four sessions in May so far, following a meagre 0.30% rise in April.

Analysts believe Indian stock market's premium valuations, selling by Foreign Institutional Investors (FII), pre-election jitters and mixed Q4 results so far are among the factors behind the market's fall.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.