Contributed by: Shravan Kumar Sreenivasula, CFA, IAIP and Birla Sun Life AMC
Kenneth Andrade is known by the moniker “Midcap Moghul”. It is a very apt description of a fund manager who likes to be benchmark agnostic and aims to pick stocks that are wealth creators for his investors. He currently runs his own PMS by the name of Old Bridge Capital Management with a corpus of USD 150 mn. In a conversation with the very inquisitive Sonia Gandhi on a Friday evening in front of IAIP members, Kenneth covered from topics ranging from his role models, his market view, lucrative market opportunity he is sighting and his philosophy of investing. He always makes investing look simple and yet he picks up differentiated bets which run up to be multi-baggers.
Here are some of the key take-aways for me and hope it will be helpful for others who may have missed it.
- On his view of the markets, he mentioned that the P/E ratio across the global markets is high. Investors have been looking for “E”. It is like looking for a corner in a room that has no corner. The reason why the P/E is high is due to lower bond yields and liquidity chasing assets that have atleast some yield. Infact, more liquidity is chasing equities as interest rates are increased by central banks leading to rise in bond yields (and hence capital losses)
- On what could cause the most waited corrected, he warned that it is always an unknown and unexpected event which could bring down the valuations across the world. Today, it is difficult to point out which one
- He cautioned that one has to take note that this decade has by far been the calmest in past many decades. There was the Global financial crisis in the previous decade, dot come crisis & Asian financial crisis in the previous one, junk bond crisis in the previous one and so on and so forth
- He believes that the private capex is some time away as there seems to be no equity being put into companies which would typically lever it up to kick start the capex cycle. He has missed out on the recent financials rally and would be glad to be out of it going forward as well as he is wary of such high valuations for private banks and NBFCs
- On his investment philosophy, he looks at companies which are distressed in an industry that is making money and pick those which are earning (ROCE) better than hurdle rate. He further mentioned that those companies that are garnering market share in the down cycle could be good investment bets as they are the ones to bounce back faster incase of up cycle. He has reiterated his guideline of liking companies that respect capital because equities is about buying efficient capital. He advised that most important point to note is to buy at right valuations
- On an audience question as to how to evaluate corporate governance of a company, he mentioned that he would look how the four stake holders of the company are treated – Customer, Employee, Bond holders and Share holders. The customer through the kind of products offered and constant improvement of the same. The employee by way of compensation, opportunities and retention plan. The bond holders through the timely payment of coupons. The share holders through the efficient use of capital and payment of dividends. This should objectively measure the corporate governance of the company
- He is most bullish on the entire value chain of the farmer. The focus of the government on rural (particularly farmer), increasing in MSP prices, soil health cards, crop insurance, direct fertilizer subsidies etc. augur well for the farmers. Government is paying 7:1 for crop insurance and farmer literally has downside protection incase of crop failure. The overall farm waiver could be 2.15 lakh crore rupees in three years which is 15% stimulus to the farmers. So, the entire farm value chain from seeds – fertilizers – mechanization etc. would get benefitted atleast for the next 2-3 years