'FY27 Earnings Unlikely To Disappoint': Kenneth Andrade Spots Long-Term Winners In Auto, Pharma

India Inc has shown resilience amid global volatility due to geopolitical conflicts in 2026 - That's the word on D-Street! The pulse of the domestic market reverberates with the verdict from most market analysts that Q1FY27 results declared so far have surprised a bit on the upside. If this trend sustains, FY27 earnings growth can be better than initial expectations. 

Most corporates have managed inflationary pressures despite the global triggers stemming from war-led supply shocks and set the stage for robust earnings visibility through FY27, according to Kenneth Andrade, Founder and CIO of Old Bridge Mutual Fund. In an exclusive interview with NDTV Profit on Monday, Aug. 3, Andrade highlighted the Indian economy's macroeconomic strength, market's sector-specific opportunities, and the shifting valuation metrics.

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Andrade noted that the first quarter clearly demonstrated corporate India's ability to absorb ground-level inflation and convert it into solid profitability. Cash flow situations are significantly better compared to the exit of the previous year. Building on the Q1 foundation, he remains optimistic about the coming quarters, indicating that FY27 earnings will likely not disappoint investors. A weaker rupee has emerged as a significant tailwind. Andrade highlighted that the currency advantage is directly reflecting in a reasonably strong earnings uptick and inventory gains, keeping the macro environment favorable.

Sectoral Sweet Spots: Chemicals, Automotive, Pharma

Old Bridge Mutual Fund favors companies that have already put their heavy capital expenditure (capex) cycles behind them. Andrade pointed out chemicals, automotive, and pharmaceuticals as the primary beneficiaries of this cycle. Pharma space can benefit from earnings in USD, believes Andrade. A major reason for his bullishness on these export-heavy sectors is their pricing power.

Because most of these companies price their products in dollar terms, they gain a massive currency advantage, ensuring smoother earnings for the rest of the year. The valuation spectrum of chemicals and ancillary remains healthy, according to Andrade, With companies in these spaces establishing themselves as the lowest-cost producers globally and finding new markets, their underlying valuation spectrum remains highly attractive.

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Auto Ancillary Ecosystem

According to the expert, the entire ancillary value chain is in a sweet spot: From OEMs taking 5-8% price hikes to vehicle financiers seeing robust 5-8% book growth, the entire automotive value chain is thriving. Andrade noted that the Auto Ancillary segment is very capex intensive: While ancillary companies are successfully building out adjacencies (like precision manufacturing, defense, and aerospace), Andrade cautioned that these operations require substantial and continuous capital investments.

Ancillary RoEs will be lower than OEMs in the long-term, according to the expert. Due to the heavy capex required to sustain growth, the long-term Return on Capital Employed (ROCE) and Return on Equity (ROE) profiles for auto ancillaries are expected to remain materially lower than those of the primary OEMs, according to Old Bridge Mutual Fund.

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Healthcare's Structural Boom

Many CDMO drugs are going out-of-patent. Healthcare offers a massive structural runway. Andrade highlighted an upcoming "patent peak" over the next decade, with nearly $750 billion worth of drugs coming off-patent. This is sparking a scramble for new product pipelines and bringing a wave of outsourced work directly to Indian Contract Development and Manufacturing Organizations (CDMOs). ''Diagnostics companies have also been executing well,'' he said. Though valuations in the highly domestic diagnostics and hospital spaces remain stiff, Andrade highligted the high-quality on-ground execution.

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