Foreign investors a bit wary of on-ground situation: Kenneth Andrade

Despite uncertainty, investors will look at the long-term core fundamentals while investing in equities, says the founder & chief investment officer, Old Bridge Capital Management

As the markets gear up for the US presidential election in early November, KENNETH ANDRADE, founder & chief investment officer, Old Bridge Capital Management, tells Puneet Wadhwa despite this uncertainty, investors will look at the long-term core fundamentals while investing in equities. Edited excerpts:

How are you tackling uncertainty surrounding the outcome of the US presidential polls?

There is always a degree of uncertainty in every event which has an unpredictable outcome. The same holds for this one. In the longer term, the core fundamentals take over. That has always been a stance we have adopted heading into every event. The US election will be no different.

Do you see more stimulus coming through from global central banks?

 If we visit the primary reason for stimulus, it was to counterbalance the freeze in economies due to the pandemic. That has had its moderate effect and we have seen the bulk of this money in the system already. The other question we need to ask is whether things are still deteriorating. If not so, throwing more money at the same crisis may not be the best sought out solution. While I would not want to speculate on more stimulus, but it definitely won’t be in the same proportion of what we have already seen.

What more measures do you expect from Indian policymakers?

A lot can be done -- current measures are directed significantly at the rural economy, and necessarily so since people in rural areas account for the bulk of our national population. In the medium term, however, we need a lot more attention to be paid to our financial system and reduce the risk on it. Fixing other leakages, including subsidy and power reforms, can ma­ke a material difference to the government’s fiscal. The­se are the low-hanging fruits where the problem is known and can be addressed. 

To what extent have the markets priced in India’s economic situation?

There are challenges to the macros. The numerical output, which looks weak, is all the function of fallen demand. We will take a long time to come out of the forced slowdown. I don't think I have an answer to how to bring this back — different countries are experimenting with different solutions, and over a period of time, things will normalise. A lot of corporates have taken a breather in their quest for growth and have concentrated on costs and fixing the balance sheet. So, if you take your eyes off the macros for a while, the micros are rebounding. I have always been an equity investor, and buying on dips has always been more rewarding.

Which sectors are still investment-worthy?

 We have been looking at businesses with relatively higher exposure to international trade. A lot of global macro events have led to some categories in India gaining traction in international trade. If domestic demand is sluggish, and trade favours Indian companies, some of them will turn out to be extremely large global participants in their segment. Quite a few of these emerged in the 1990s. I will not want to rule out this happening in very different industries in the current decade. I prefer to own businesses on their way to becoming large. More money is made in that format. 

How do you see the liquidity situation playing out for the markets?

This is always a guessing game on foreign liquidity. India remains a strategic market for allocators in equity. So, the money will come. Currently, given the response to the pandemic and the economy, other countries have performed better. Foreign investors are a bit wary of the on-ground situation in India. This, however, is transient.

For someone who missed the bus in March, what are you advising as an investment strategy now?

Stocks, except for a name or two, have not done much for the last couple of years. A lot of them have corrected time-wise and in some cases, prices are even below their 2017 high. We are not calling for a recovery in demand, but efficiencies itself will drive profitability. We remain focused on sectoral leaders -- small and big. The only caveat is compared to March 2020, the time frame for a high return can get stretched out. March 2020 was just a time when things looked tough, they do now, too. If the environment and the economy do pull back, you wouldn't want to look back and say I missed October!

After initial euphoria, a few initial public offerings (IPOs) did not elicit the desired response. Is the primary market buoyancy over?

There is always a lot of asymmetry of information in the IPO market, which is why the euphoria builds through. A lot of returns, at times, is upfront, which is the recent case. But it will always be a relevant place to fund business. The pricing will adjust to demand, and that market still has strength. In the near term, we are hopeful of better pricing of issues.