Old Bridge MF: FY26 Will Likely See Earnings In High Single Digits | NDTV Profit

Summary

Kenneth Andrade, founder and CIO of Oldbridge Mutual Fund, discusses India's economic outlook for 2025-2026, highlighting slower growth in corporate earnings, with expectations of low double-digit growth. He emphasizes India's strong corporate balance sheets and low leverage, which should sustain valuations despite slower earnings growth. Andrade also stresses the importance of global expansion for Indian businesses, with a focus on sectors like pharmaceuticals, chemicals, IT services, and auto ancillaries. He remains optimistic about urban consumption rebounding and sees opportunities in both domestic and export-driven sectors, positioning India for long-term growth in the global market.

Takeaways

• 😀 Corporate India's performance in 2024 has been strong, but earnings growth is expected to slow down in 2025 and 2026, with growth likely in the low double digits or high single digits.
• 😀 Despite slower earnings growth, market valuations are expected to remain stable due to the cash accumulation on corporate balance sheets and low leverage among Indian companies.
• 😀 The Indian economy is expected to experience slower economic activity, especially in the second half of 2024, partly due to the general election and slower order intake in certain sectors.
• 😀 The key growth drivers for India in the next few years will include volume growth rather than high-margin growth, especially in sectors like agriculture and rural consumption.
• 😀 There is a shift toward global markets, as many Indian companies are focusing on exports to drive growth and maintain their capital expenditure cycles.
• 😀 Investments are being made in sectors that have strong global-facing franchises, including metals, contractors, and companies involved in international manufacturing.
• 😀 Corporate India is focusing on expanding its footprint beyond domestic markets, targeting global opportunities in sectors such as IT services, chemicals, pharmaceuticals, and automotive.
• 😀 The private capex cycle is still not fully activated, but any potential increase in capex is unlikely to significantly disrupt the current market dynamics.
• 😀 The Indian stock market is currently trading at elevated valuations, but these valuations are supported by strong cash flows and a low debt-equity ratio in corporate balance sheets.
• 😀 Approximately 55-60% of Oldbridge's portfolio consists of companies with significant dollar-denominated earnings, indicating a strong focus on international growth opportunities.
• 😀 As India transitions from a developing to a developed economy, companies must expand globally to sustain growth, with exports playing a critical role in this process.

Q & A

What is Kenneth Andrade's outlook for corporate India's earnings growth in 2025 and 2026?

Kenneth expects corporate India's earnings growth to be slow in 2025 and 2026, with a forecast of low double-digit or high single-digit growth. The market is likely to take a breather during this period, with volume growth supporting some activity.

How does Kenneth Andrade view market valuations amidst slow earnings growth?

Kenneth believes that despite slow earnings growth, market multiples (around 20-21 times) will likely remain elevated due to strong cash accumulation and low leverage on corporate balance sheets. This should prevent a significant market sell-off.

What role does corporate leverage play in the current market valuation outlook?

Corporate India's low leverage is a key factor in keeping valuation multiples elevated. Since leverage is unlikely to increase dramatically in the near future, Kenneth doesn't foresee significant valuation adjustments.

What is the expected impact of corporate capex cycles on market dynamics?

Kenneth does not expect the corporate capex cycle to significantly impact market dynamics. Although private capex is expected to grow, it is not large enough to drive a market downturn or result in a significant increase in debt levels.

How does Kenneth Andrade view India's transition from a developing economy to a developed economy?

Kenneth sees India's transition to a developed economy as reliant on increasing international market share. Companies must focus on exports and global expansion to sustain growth, moving beyond the domestic market.

Why does Kenneth emphasize global expansion for Indian companies?

Kenneth emphasizes global expansion because it allows companies to diversify and access larger markets. By targeting global markets, Indian companies can maintain growth and profitability beyond India's domestic economic constraints.

Which sectors does Kenneth view as key for India's global growth strategy?

Kenneth highlights sectors such as IT services, pharmaceuticals, chemicals, automobile manufacturing, and energy as critical for India's global growth. These sectors have significant potential for export and international expansion.

What percentage of Oldbridge's portfolio derives revenue from global markets?

Approximately 55-60% of Oldbridge's portfolio companies derive significant revenue from dollar-denominated earnings, reflecting their strong presence in international markets.

What sectors in India does Kenneth believe will benefit from domestic growth?

Kenneth sees domestic growth opportunities in sectors like construction, energy, and real estate, driven by urban consumption and ongoing infrastructure development, particularly in cities like Bangalore.

How does Kenneth Andrade assess the risk of a significant market sell-off in the current environment?

Kenneth does not foresee a significant market sell-off, despite high valuations. He attributes this to the solid financial health of corporate India, which is less reliant on debt and has strong cash flows, ensuring resilience in the market.