Kenneth Andrade says investors should watch valuations, can look at unpopular themes

NEW DELHI: Market veteran Kenneth Andrade said investors need to be watchful of valuations in this market, as he believes the economy is going to come out of one-and-a-half-year slowdown soon. The IPO market, to an extent, has gone beyond logic, he said and advised investors to look into unpopular themes such as real estate and metals, which have not performed for long.

In an interview with ETNOW, Andrade said he would prefer some consolidation or pause in the market at these levels, “but the market has a mind of it own.”

The founder and chief investment officer at portfolio management firm Old Bridge Capital Management said he does not think either 2022 or 2023 would be indicators of how things would progress for India. “On the corporate side everything is okay, but I am concerned about valuations. There are bubbles being created in the market place, and you will have to navigate them going into 2022," he said.

Andrade said he would be cautious on IPOs, because one cannot buy 'expensive' and hope that someone at the other end is going to buy the same stock at exorbitant valuations. “Obviously, the IPO market that has gone beyond logic,” he said.

“Some part of the market is completely stretched. On the commodity side, you may worry about what is happening in chemical or specialty chemical businesses," he said.

Andrade said one may look at the unpopular parts of the market, which have not done anything great, but are throwing up cash flows and putting money to work.

In the metals space, the expert said, some companies are seeing cash flows equivalent to the entire FMCG sector. "Take any of the large steel companies that you know, and just look at the 2022 numbers that some of these companies will report. It is larger than the entire profitability of the FMCG sector. That is the strength of that business, everything else is insignificant,” he said.

The market veteran says he likes real estate. “The real estate market in India has not done anything in the last two decades and the industry has consolidated quite significantly in the last decade,” he said.

"You go back to 2007 and some of the companies have gone back to the IPO prices, let alone all-time highs. Over the last decade, they have improved every single metric that they have operated with over the last 12-13 years now. If you are going to specific sectors, which are not very popular, the probability of you coming out in 2022, 2023 and 2024 even if the market corrects are very high. You will come through with the fairly nice return profiles on the portfolio," he said.

To play on the consumer cycle, Andrade said one would probably have pockets of opportunities in urban-centric plays where the per capita incomes are still on the rise and incomes are actually rising more than the average inflation.

Meanwhile, he said many of the auto ancillary companies have consolidated their market share not just in India but also there in the international market. "It could be a nice trend to play out over the next couple of years as you have got scale, you have got a fair capacity and you can feed into the supply chain," he said.