Kenneth Andrade’s Recent Interview
- Capital Goods & Capex Dominated stocks are trading to significant premium where any of the large consumers.
- 4 Pharma companies as top 10 holdings : World’s generic manufacturer and capex cycle is almost year, over the course of last 5 years the industry has cleaned up its balance sheet and they are net positive. The ability to generate significant amount of profitability from the existing capex. 2024-25 will be years where this industry will hit its all time high terms of profitability and cash flow generation. Growth + category leaders + balance sheet + favorable valuation.
- Banks & Finance : Kenneth doesn’t have them as he mentions its an historic trade – he chose to be on asset side and not on liability side.
- His Macro Trade/Directional trade would be capex and industrials
- Breadth of the non capex/industrial is narrowing significantly.
- He states that his bet is not on industries but on capex themes
- Global Cycle : Metals/Export/Pharma – Global GDP growth is held up by defense, industrial capex, Governments are going to be largest spenders, consumers are taking back seat due to inflation
- Government put their balance sheet to work on capex side on rebuilding the entire industry, they will have to generate cash (i.e. were the inflation cycle is sitting)
- Kenneth is favorable on commodity, defense.
- IT companies : Significant hiring done with expectation for growth – now cutting down the head counts. IT will be in static phase
- With respect to the power/railway or others – everything boils down to commodities – which can generate huge free cash flow (so he is more interested towards metals, steel, bearings)
- New age companies : Zomato/Paytm – he plans to buy on second cycle, waiting for market to mature and markets correct. – tracking radar.
- Consumer : The valuation is not favorable
- Chemical market is fairly stressed across globe especially agro chemicals
- Consumer space : Middle class is heavily stressed, household debt – consolidation will happen – tracking.
- EV/Energy Transition/Climate Change : Not participating will wait for second cycle
- Generic Pharma/Pharma is mapping to the entire IT cycle that the IT has been through since. Pharma is the lowest cost manufacturer, getting market share from international business, US companies (generic business are extremely leveraged), Balance sheet of Indian companies are in favor, Interest rate going up in US,
India has the physical capacity + Financial capacity = where US has got none.
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