The ‘Best Is Behind’ For Consumer Discretionary Stocks, Says Kenneth Andrade

“Valuations are nice but they are not going to regain their highs. We’re taking a pause on that,” said Kenneth Andrade, founder and chief investment officer of Old Bridge Capital. “It won’t de-grow in perpetuity but the best is behind us,” he told BloombergQuint in an interview.

The novel virus outbreak has brought an unprecedented sudden stop to activity in India, where consumption makes up 60 percent of the economy. According to economists at Goldman Sachs the nation will experience its deepest recession ever as incomes take a hit.

India extended its nationwide coronavirus lockdown till May 31, while further easing restrictions in certain sectors to boost economic activity. While Prime Minister Narendra Modi promised a Rs 20 lakh crore economic stimulus package, details announced by the finance minister add up to much less.

Andrade said it would take a few years for growth to return to these (consumer discretionary) companies and even then they will not be valued by the market as they have been before. His firm, however, owns a few automotive stocks.

Profit across sectors is going to take a hit this year, he said, suggesting that companies should write-off the first six months and concentrate on the second half. As for finding value in the market, he said, companies with good underlying balance sheets could still generate earnings in a “washout” year.

Watch | Kenneth Andrade On The Biggest Opportunity He Sees In India

Andrade’s Take On Other Sectors

Telecom

• Looks like we have reached the end of the deterioration of balance sheets.
• Players need to agree to pull back profitability because it is not cheap to run an infrastructure business in India.
• We can see in some of the numbers coming through that sanity is prevailing among them.
• All three players should survive the next five years.

Finance

• Financial and consumption cycles are intertwined. The financial cycle was doing well because of the chain of the consumption cycle.
• We were not very comfortable with the fragmentation of the space and even the valuations so we took a step back.

Agriculture-Facing Companies

• Agriculture at least in the first half will hold up.
• There is movement of all agri-goods companies, it’s not negative at least.
• Significantly better than anything compared to industry and urban culture.
• Caveat to that is that agriculture is only 15 percent of India’s GDP, so I won’t bet much money on the idea that agriculture will pull India out of this.