Markets
Value no longer exists in this market; it is all about growth: CIO, founder Old Bridge MF Kenneth Andrade
Summary
Kenneth Andrade, CIO of Old Bridge Mutual Fund and founder director of Old Bridge Capital Management, believes in buying for capital efficiency, but only at the right price.
When asked where he sees growth and value, Kenneth Andrade, CIO of Old Bridge Mutual Fund and founder director of Old Bridge Capital Management, bluntly says, “Nowhere."
“When you talk about value, it no longer exists. It's all about growth," he said.
Andrade believes in buying for capital efficiency, but only at the right price. “We don’t subscribe to the approach of outbidding others for high-quality stocks at any cost."
He believes this year and a part of 2026 are likely to be years of market consolidation. So, he does not expect great returns this year or even the following year. After five straight years of strong positive returns, it is natural for the market to take a breather. “Even if the market dips slightly this year, I don’t see it as a major concern," he said.
Edited excerpts:
If you were to get ₹10 lakh today, what would your asset allocation mix be?
The choice of investment depends heavily on your time horizon. If I were to invest today, I would allocate around 30% to equities and distribute the rest between bonds and real estate. By real estate, I mean primarily REITs or InvITs, where yields are relatively attractive.
We are witnessing a course correction in some asset markets, particularly equities. Our outlook suggests that equities as an asset class may undergo a consolidation phase through 2025 and some part of 2026. That period could present an opportunity to shift assets back into equities.
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For the better part of this decade, I continue to favour equities and real estate—especially real estate yields over bonds. In an inflationary environment, fixed income may not be the best place to be on a structural basis. Beyond equities, real estate offers a physical asset hedge against inflation. So, that is where I would tend to believe that developers will get some pricing power towards the end of this decade.
What is your take on commodities, particularly gold? There’s been significant traction in Gold ETFs throughout 2024. How do you view the trend so far?
Given the volatility in the currency markets, gold appears to be a preferred choice for many. Not everyone fully trusts digital currencies yet, making gold an asset or commodity to hold temporarily. However, in the long term, gold does not generate earnings; it is primarily a store of value where investors park their money, anticipating capital appreciation over time.
In a market like this, it is often said that large-cap stocks act as a safety net for investors, while mid- and small-cap stocks have the potential to generate alpha. How true is this?
When you examine the base valuations of large-, mid-, and small-cap businesses in a specific environment like this, you can see why froth has built up in the small caps and some excesses in the mid-caps. In large caps or bigger companies, valuations remain high but are relatively lower than mid- and small-caps.
Considering an equity allocation across market caps at this point, I base it on capabilities. Mid- and small-cap companies can generate wealth in the long term, while larger companies offer returns but with comparatively lower downside risks. I would feel safer investing in larger companies in a consolidating market environment like this. However, I would always keep my options open to allocate capital to businesses aligned with our price targets.
What criteria should investors consider when selecting companies in the mid- and small-cap space? Do you have specific standards or benchmarks that they should focus on?
Every investor is unique—some focus on growth, while others prioritize value. It is essential to choose the space that aligns with your investment approach. As investment managers, we believe in buying for capital efficiency, but only at the right price. We don’t subscribe to the approach of outbidding others for high-quality stocks at any cost. Our strategy is straightforward: any company entering our portfolio must demonstrate the ability to gain market share in its industry. This is our key metric when venturing into new areas or allocating capital to new companies.
Given the current market conditions, we’re observing periodic dips followed by bursts of bargain hunting. What is your interpretation?
As I mentioned earlier, 2025 and some part of 2026 are likely to be years of market consolidation. So, I would not expect great returns this year or the following year. After five consecutive years of strong positive returns, it’s natural for the market to take a breather. Even if the market dips slightly this year, I don’t see it as a significant concern.
So, what should be a smart strategy for an investor?
There’s no specific strategy right now—you simply have to wait it out. When you invest in sectors like financials or banking or even take a broader portfolio view, price-to-earnings multiples are often around 35 to 40 times earnings, which is quite steep. I’m not saying the market will correct or collapse, but it is fully priced, with some areas even overpriced. I doubt there’s much room to generate significant returns from here. Instead, it’s better to create your investments. Over the next 18 months, you will likely find opportunities to allocate funds in portfolios or stocks you prefer gradually.
Is now the right time to carefully select companies, given that prices are relatively more attractive compared to a year or two ago?
No, it is not better than a year or two ago. I believe this is the time to be selective with your investments. You need to identify the companies you want to invest in and wait for the right price to enter.
Recently, the rupee hit a record low. Could you break that down for us and explain which sectors might benefit from this and which could be negatively impacted?
The currency situation isn't as bad as it might seem. Compared to many developed market currencies, most have struggled against the dollar. Even within emerging markets, when you compare a country of our size within Asia, we are fairly close to where China is in terms of the devaluation of the rupee. Excluding countries in the Middle East, which peg their currencies to the dollar, we are comfortably ahead of most nations.
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That said, the key is to focus on companies, especially large ones, with a strong US presence. These companies benefit from exporting to a much stronger currency, which is the place to be in.
Looking ahead to 2025, which sectors are likely to perform well?
Throughout 2023, especially towards the end and into a large part of 2024, we made a slight thematic shift in our portfolio. Initially, we were focused on the infrastructure, manufacturing, and commodity sectors, which we liked during 2023 and 2024. However, we shifted our positions to significantly increase exposure to companies with large dollar earnings or international presence. Our biggest allocation now is in pharmaceuticals. India is a global leader in volume pharmaceutical production, and we are among the most cost-efficient producers of these commodities worldwide. Additionally, we’re benefiting from market share gains against China.
Another major allocation is IT, which, along with pharmaceuticals, makes up about 40% of our portfolio.
While industrials and capital goods are in a favourable environment, I have concerns about pricing. I am not willing to pay top dollar for a single business. Contractors, engineering firms, capital goods, and equipment manufacturers all trade at 20-25 times earnings, and I am not entirely comfortable with that.
Do you find value in today's market?
No.
Why do you say that?
It doesn't exist.
What about growth?
We're not a great growth investor.
We can't predict growth.
However, corporate India has ample available capital to pursue growth. We have some of the best balance sheets globally, and there's plenty of capital to invest in growth. Unfortunately, there aren't many opportunities available. That's the challenge when it comes to India. India accounts for about 3.5% of the world’s Gross Domestic Product. As an investor, you must broaden your scope and seek business models that can dominate international cash flows.
In terms of giving the best to your investors by generating superior returns for them, where do you see growth and value?
Nowhere. When you talk about value, it no longer exists. It's all about growth. If we can execute well and acquire market share, there are areas where growth opportunities are still available.
