'Markets are not expensive; they are fairly priced.'
It has been a good run for markets lately, with the S&P BSE Sensex and the National Stock Exchange Nifty50 scaling new peaks.
Kenneth Andrade, founder and chief investment officer, Old Bridge Capital Management (Old Bridge Capital), tells Puneet Wadhwa/Business Standard in a freewheeling conversation, that equities will get their share of the investment pool.
Will the next few months be a stockpicker's market rather than a rising tide lifting all boats?
This is a buoyant environment, and stock prices are reacting to it. And this will remain for a while.
Suffice to say, a lot of companies will do well, and the rising tide will lift a lot of boats. Investors should stay focused on staying invested.
The argument here is that markets are not expensive; they are fairly priced. Yet, if you go to the results of 2022-2023, we have a situation where less than a handful of companies reported operational losses.
Debt has been largely paid off, and now companies are struggling to invest their surplus cash flows.
The situation above adequately defines an environment that businesses can leverage to capture any opportunity that comes their way.
This also means they will never be available at cheap valuations.
What has been your investment strategy thus far in 2023?
Cash liquidity in our portfolio is marginal. We try to stay invested at all times, except when there is a large exit in the portfolio.
In the past two years, the churn rate has been minimal.
We had a bias towards pharmaceutical, incrementally adding to real estate and holding onto commodities.
We have taken some money off our capital goods stocks.
Some of the valuations there seemed fairly well beyond what we could digest.
What is your outlook for flows into equities as an asset class over the next few months?
From a domestic perspective, I think flows will be consistent.
Today, we have alternate investment opportunities in fixed income, real estate, and gold, which rival equity as an asset class.
Especially the latter two, which are great hedges against inflation.
This is a saver's market, and equities will get their share of the investment pool.
From a foreign flow perspective, with global markets stabilising, India has seen improved capital flow.
But again, this pool of capital should be looked at in the context of what is happening overseas.
Foreign capital flows will follow the volatility in international capital markets.
Is the money from retail and high networth individuals (HNIs) hard to come by for investment into equities as they wait for a clear market direction?
The pool of capital for equity from HNIs has always increased. It may have hit a cyclical patch or two, but overall, it has been directionally positive.
What's the Next Big Theme for markets that investors haven't latched on to?
We can divide that into two segments: industries that are large and don't have any significant presence in the Nifty, the likes of real estate and pharma, and not just these two.
Both of these should see a lot more companies represent themselves in the indices.
The other segment is the one that is correcting itself cyclically; information technology is one of them, especially large-cap IT.
Textile is another segment that, after hitting its lows, has seen some revival.
If I cumulatively take all the above categories, the common thread is how these companies garner a higher share of the international market and subsequent cash flows.
In doing so, they would have a multiplier effect on employment in their domiciled country, which, in turn, would be positive for urban consumption.
Can the next negative surprise for markets come from subpar earnings growth in 2023-2024 as companies battle sticky inflation, global recession fears, and El Nino fears?
The above are all relevant worries. None of these will result in a shock, but just a cyclical slowdown, which will be addressed in the following year.
Our view is that the current valuation largely discounts the above concerns.
Are there any signs of rural distress that are not adequately reflected in stock prices?
When toothpaste consumption declines and premium cars and watches grow, there is a big difference in the way India spends.
Rural India is facing some challenges, and they seem to be cyclical, driven by an inflationary spike after the pandemic.
2024 should be a better year to measure the economy in this part of the country.
Old Bridge Capital had received in-principle approval from the Securities and Exchange Board of India to foray into mutual funds earlier this year. What's the progress on that front?
Yes, we have received our in-principle approval. We are going through the process of completing our documentation, which is required for the final approval.
Feature Presentation: Aslam Hunani/Rediff.com
