Shankar Sharma: Small-Caps Fuel India’s AI & Data Growth

Ace investor Shankar Sharma emphatically states that India’s small- and mid-cap stocks are poised to capture significant growth opportunities. This potential, he argues, stems largely from global advancements in artificial intelligence (AI) and the expanding data center infrastructure, a stark contrast to large-cap stocks that currently lack fresh market catalysts.

Sharma, founder of Gquant FinxRay, recently revealed in an interview that beneath a seemingly calm market surface, substantial momentum is building. He highlighted the apparent stagnation of the Nifty 50, while noting that smaller indices have seen nearly half their constituents replaced by new, growth-oriented enterprises.

AI and Data Center Catalyst

His investment focus remains firmly on the AI and data-center ecosystem, anticipating the global AI trade will continue its expansion. Indian companies, Sharma believes, are particularly well-placed to benefit from this extensive infrastructure spending.

The data-center boom, as explained by Sharma, is creating significant demand for what he terms “infrastructure tech” businesses. These are key suppliers essential for the ongoing expansion and technological upgrade:

• Cables
• Optical fiber
• Electrical equipment

Long-Term View, Growth Over Valuation

Sharma characterizes the data-center expansion as a long-term phenomenon, necessitating continuous capital expenditure for both technological upgrades and increased processing capacity. Consequently, he has strategically increased his exposure to small-cap investments, identifying them as a preferred segment.

While acknowledging short-term risks associated with valuations and inventory gains, Sharma sees superior potential in growth-oriented small caps. He advises investors against equating low large-cap valuations with genuine growth, asserting that true earnings momentum is increasingly concentrated within the broader market.