Capital markets investor Old Bridge Capital is still bullish on the Indian markets amidst rising concerns on valuations and slowing domestic flows.
The Mumbai-based asset management firm had launched its maiden category III Alternative Investment Funds (AIF), Vantage Equity Fund, in December last year. And, having surpassed its initial target, Old Bridge Capital is now raising an additional Rs 3.0 billion ($46 million). The firm floated the Vantage Equity Fund late last year with the aim of raising Rs 4.0 billion, including a greenshoe option of Rs 300 crore. In an interview with DEALSTREETASIA, Kenneth Andrade, Founder & CIO, Old Bridge Capital, talked about the current mood in the Indian capital markets and the firm’s plans.
On the current mood in the capital markets given the bank frauds and attendant negativity that has surfaced, he said from a sentiment perspective, this is probably not the best time in the Indian context. This comes at the end of the deleveraging cycle and the loans which cannot be carried forward and are essentially written off. And a culmination of all of that is what you see right now. That’s what it comes from as far as the mood is concerned. However, if you strip out the noise around the banking system, corporate India doesn’t need most of these banks to really grow, because cash flows are already going to be at their all-time high and this environment is all about efficiency, utilisation, getting that operating leverage, getting efficiency in their systems. And all of this is coming with no capital employed, so corporate India doesn’t need any more investments to utilise the next 20-30 per cent capacity.
Replying to the query whether the bull run is still continuing, he said there are two elements to that. Will profitability continue to grow? It will. If you ask me, if the markets will grow linearly, you’re basically interlinking it to global cycle. What’s happening is that interest rates are going up, when that happens and bond yields move up. There is a compression on the price-earnings multiples on your equity play. The reverse of what’s happening in bonds happens on the equity side. That’s what you see emerging in 2018. This could be in continuation for some time till the bond markets settle. Bond markets are reflective of the global economic cycle and the global economic cycle like this Indian cycle is robust. So, I don’t think we should worry about it in the near term. After a 4-5 year secular uptrend in the market, the market necessarily needs to pause and you’re getting that opportunity here.
-rmc//