Shankar Sharma, a well-known investor, is reportedly cautious about the prospects of Indian banks and Non-Banking Financial Companies (NBFCs) in the current late-stage bull market. While Sharma has acknowledged the strong gains seen in Indian banking stocks and the enthusiasm of retail investors, he suggests a need for caution and a critical evaluation of the economic cycle.

Sharma has historically maintained a distance from bank and NBFC stocks, with the exception of HDFC Bank. While he recognizes their attractiveness at specific points in the economic cycle, his current stance reflects concerns about the potential risks associated with these financial institutions during the later stages of a bull market.

Several factors might contribute to Sharma's apprehension. As a bull market matures, the risk of overheating increases. This can lead to aggressive lending practices by banks and NBFCs, potentially resulting in a deterioration of asset quality. Additionally, rising interest rates, often a characteristic of late-stage bull markets, can put pressure on borrowers, increasing the likelihood of defaults and non-performing assets for lenders.

Another factor impacting Indian banks is the decline in CASA (current accounts-savings accounts) ratios. Several top lenders have experienced a drop in these ratios, which affects their net interest margins. With lower CASA ratios, banks may need to rely on more costly funding sources, impacting their core profitability.

Sharma's investment approach emphasizes long-term investing, prioritizing the growth potential of stocks and avoiding short-term market fluctuations. He is known for his astute market analysis and stock-picking abilities, having identified the potential of the Indian IT sector in the 1990s. He also advocates for investing in small-cap stocks, emphasizing their growth potential.

While Sharma's specific reasons for his wariness towards Indian banks and NBFCs in the current market context aren't detailed, his general investment philosophy and understanding of economic cycles likely play a significant role. He has, in the past, advised a conservative approach to wealth, recommending fixed deposits, gold, and land as investment options. He has also expressed the view that luck plays a significant role in stock market success, and has advised young investors to consider opportunities in global markets.

It's important to note that Sharma's perspective is a reminder to investors to conduct thorough due diligence and consider the potential risks before investing in any asset class, particularly in a late-stage bull market. Evaluating the current economic climate, a company's fundamentals, and one's own risk tolerance are crucial steps in making informed investment decisions.