{"id":111262,"date":"2021-04-05T05:30:07","date_gmt":"2021-04-05T05:30:07","guid":{"rendered":"https:\/\/fin2me.com\/?p=111262"},"modified":"2021-04-05T05:30:07","modified_gmt":"2021-04-05T05:30:07","slug":"stock-valuations-may-not-go-up","status":"publish","type":"post","link":"https:\/\/fin2me.com\/business\/stock-valuations-may-not-go-up\/","title":{"rendered":"‘Stock valuations may not go up’"},"content":{"rendered":"

‘It won’t help being complacent about the momentum and valuations of equities that currently exist.’<\/strong><\/p>\n

Liquidity also has its cycles and there could be reversal in foreign flows if bond yields continue to rise, warns Kenneth Andrade<\/strong>, founder and chief investment officer, Old Bridge Capital Management. In an interview with Samie Modak<\/strong>, Andrade spells out the challenges in playing the ‘value’ theme.<\/p>\n

What are your views on valuations and corporate earnings?<\/strong><\/p>\n

Earnings growth is reverting to mean.<\/p>\n

This is a good thing as it does provide a lot of cash flow to corporates to restructure their business operations.<\/p>\n

So rather than looking at earnings growth we should look at how profitability improves financial health of the business.<\/p>\n

This trend remains secularly upwards. And that is one of the reasons why markets trade at fair valuations.<\/p>\n

Given the macro-onslaught of liquidity and abnormally-low interest rates, high valuation can be sticky.<\/p>\n

That shouldn’t be the reason to get complacent about them.<\/p>\n

Do you believe there is scope for further expansion in valuations?<\/strong><\/p>\n

A lot of us believe that the stimulus is perpetual and this will continue to inflate asset prices.<\/p>\n

We need to be a bit careful where to draw this line.<\/p>\n

Earnings will come back, but that does not always mean stock valuations will go up.<\/p>\n

One has to be cautious when it comes to extrapolating macros and the market.<\/p>\n

The market has taken the Budget very positively. Among the Budget announcements, which ones could have a big influence on the market if implemented properly?<\/strong><\/p>\n

More than a single event, the reshaping of the global trade macros and India’s response to it is providing large opportunities to a cyclical recovery.<\/p>\n

Should the emphasis on manufacturing and protecting domestic corporate profitability sustain, this could be the large economic multiplier we have been looking for.<\/p>\n

The ‘value’ trade has finally caught on.<\/p>\n

After every economic shock, the trade mostly shifts to protection of capital, which is where the market has found the ‘value’ bias.<\/p>\n

But for this trade to sustain, these companies also need to demonstrate growth.<\/p>\n

What is your take on the rally in the PSU universe?<\/strong><\/p>\n

In conjunction with the above, growth needs to kick in for value to emerge.<\/p>\n

For us as investors, we have a difficult time trying to ascertain capital-efficient growth in most of these PSUs.<\/p>\n

Do you think there are hidden opportunities available in the smallcap space?
Can you share some insights about going about investing in this space where there is little research available?<\/strong><\/p>\n

In an environment driven by passive flows, the momentum is usually in the most liquid part of the market.<\/p>\n

There are opportunities in the smallest part of the market.<\/p>\n

However, given the structure of the money chasing equity, we can’t expect divergent valuations between the large and the small companies to converge.<\/p>\n

One needs to try and pick the opportunity in smaller spaces and be very patient with these investments.<\/p>\n

It will be ideal to run a very balanced portfolio.<\/p>\n

If FPIs pull out for any reason such as rising bond yields, do you think Indian markets will get de-rated?<\/strong><\/p>\n

I don’t think you can time this.<\/p>\n

Liquidity also has its cycles. Flows could reverse if bond yields continue to rise.<\/p>\n

Like I said, it won’t help being complacent about the momentum and valuations of equities that currently exist.<\/p>\n

Cyclical stocks metal, energy, cement stocks too have done quite well.
Do you think the rally is justified?
Is there further scope for valuation expansion?<\/strong><\/p>\n

The world is seeing a cyclical recovery in a number of industries.<\/p>\n

The automotive market needs to be reformatted to work on electricity.<\/p>\n

The energy industry is decarbonising, which in itself is a massive investment cycle.<\/p>\n

All this and many more categories are undergoing changes that we haven’t seen in decades.<\/p>\n

This is going to put pressure on the supply side of all the building blocks of the sector.<\/p>\n

On the other hand, for the last decade, there has been negligible investment in the commodity cycle which has kept supply in check.<\/p>\n

In the medium to long run, the fundamentals stack up for these businesses.<\/p>\n

I would keep a close eye on valuation for assessing my entry points into this trade.<\/p>\n

Any other sectors you are bullish on?<\/strong><\/p>\n

The tech sector does look compelling if they stick to their guidance.<\/p>\n

The digitisation could trigger large capex cycles which would favour large IT services companies.<\/p>\n

Apart from this the obvious choice would be businesses that will benefit from the cyclical recovery in exports.<\/p>\n

Companies that are now competing with the rest of the world.<\/p>\n

What’s your view on the banking space?<\/strong><\/p>\n

I don’t think you can be very bullish about this space as a whole.<\/p>\n

You need to be selective. A couple of companies will do well, as it is an industry where stronger participants are consolidating their franchisee.<\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

‘It won’t help being complacent about the momentum and valuations of equities that currently exist.’ Liquidity also has its cycles and there could be reversal […]<\/p>\n","protected":false},"author":3,"featured_media":111261,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"yoast_head":"\n'Stock valuations may not go up' - Fin2me<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fin2me.com\/business\/stock-valuations-may-not-go-up\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"'Stock valuations may not go up' - Fin2me\" \/>\n<meta property=\"og:description\" content=\"‘It won’t help being complacent about the momentum and valuations of equities that currently exist.’ Liquidity also has its cycles and there could be reversal [...]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/fin2me.com\/business\/stock-valuations-may-not-go-up\/\" \/>\n<meta property=\"og:site_name\" content=\"Fin2me\" \/>\n<meta property=\"article:published_time\" content=\"2021-04-05T05:30:07+00:00\" \/>\n<meta name=\"author\" content=\"Mark\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/fin2me.com\/wp-content\/uploads\/2021\/04\/cfntalkfoto18ipos1.jpg\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Mark\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/fin2me.com\/business\/stock-valuations-may-not-go-up\/\",\"url\":\"https:\/\/fin2me.com\/business\/stock-valuations-may-not-go-up\/\",\"name\":\"'Stock valuations may not go up' - 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