Kenneth Andrade's Take On When The Market Will Turn Around — Alpha Moguls

It's only in 2023 that markets will see a turnaround from the current climate of volatility, according to Kenneth Andrade, even as the downside won't be as bad as 2020.The adversities of 2022 will be milder than the bloodbath of 2020, Andrade, founder and chief investment officer, at Old Bridge Capital told BQ Prime’s Niraj Shah. The market “will probably just drift sideways or drift down”. “You take the worst scenario that happened in 2020, where we almost lost two quarters of turnover and still, we have been able to deliver so far,' Andrade said. 'So, you define the bottom of your earning cycle, and it is not going to go below that. From there, you have to figure out how much higher it would go.”For now, markets will drift to sideways, with a bias to decline by around 10% in the worst-case scenario, he said. “Markets are not rich in pricing, but they're not very cheap either. [They’re] Sitting somewhere in the middle. The answer to ‘does it become cheap before it goes back again’, I will not be able to answer that,” he said.Andrade's caution reiterates commentary from analysts and companies that Indian markets are expected to correct but not as much as feared. While growth forecasts are being scaled down, headwinds of inflation, commodity spike and rising rates have so far not derailed the economic recovery. It's also being aided by global supply chains looking at India as a potential alternative to China.Andrade, however, is cautious of the rupee making Indian manufacturing competitive. The “two global engines” of the U.S. and Europe can enter a manufacturing cycle and rebuild their economies underpinned by the strength of dollar and the weakness of euro, he said.This migration that you are seeing from China to India, and Europe to India will hit a cyclical hump in the ongoing September-December or maybe in the January-March quarter. When manufacturing resumes, 'you could see that shift going back again', he said. 'Enjoy the cash flows for a quarter or two, but I am wary of the other side.”Yet, pockets of opportunity exist, combined with reasonably good levels of infrastructure, government-led, and non-discretionary consumption, he said. Export-related issues will remain, but they will not be as broad-based as they are now, according to Andrade. “Things will marginally improve, better than where we are standing right now.”.‘The Indian Great Capex Cycle’ Not In Near FutureAndrade, however, does not see a significantly high capex cycle coming around in near future as capacity utilisation at a middling 75% is still not conducive to it.“The manufacturing cycle has to exhaust its capacity first… your utilisation levels have to cross 85% first. [At that level] domestic cash flows hit an all-times high, and that is good for the markets, good for valuation, and good for growth,' he said. 'The cash flows will then have to go back to generate the new capex cycle. I would tend to believe that’s some distance away,” he elaborated.For now, capex will happen in a very narrow band right now, in sectors including power and utilities, as others are fairly well entrenched with capacities. Capacity expansion in pharmaceuticals, chemicals, I.T., and steel is coming on stream “with the premise that the global economy has looked up and we will be competitive there. They are not coming up with the premise that Indian economy is going to do well. The Indian economy will do well because these capacities will come on stream.”Even initiatives like production-linked incentives do not suggest that a capex cycle in already underway, he said. “You slice and dice those numbers on an overall context, it may not be as large as it should be given the size of our balance sheets.'

Kenneth Andrade's Take On When The Market Will Turn Around — Alpha Moguls

For now, markets will drift sideways, with a bias to go down, says Andrade.

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