Investors opting to sit back till things get clearer: Kenneth Andrade

The market sell-off has already captured a lot of bad news in the price. Businesses now trade at book value (BV) or significantly lower, which limits their downside.

Even though the markets have recovered from their recent lows in a hope that the worst may have already played out as regards coronavirus (Covid-19) pandemic, KENNETH ANDRADE, founder & chief investment officer (CIO) at Old Bridge Capital Management tells Puneet Wadhwa that investors need to push their investment horizon to 2022 and beyond to watch how corporates recover from the lockdown. Edited excerpts:

Do you see more pain for the markets over the next three – six months once the dent on corporate earnings and economy due to Covid-19 becomes clearer?

The market sell-off has already captured a lot of bad news in the price. Businesses now trade at book value (BV) or significantly lower, which limits their downside. The risk-reward ratio is very favorably balanced in favor of the former, time is the only element one cannot quantify. At this point there is little value at looking at the immediate future, as the first half of this year remains a washout. One needs to push the investment horizon to 2022 and beyond to watch how corporates recover from the lockdown.

How is the mood among your clients / investors as regards equities as an asset class?

There is, of course, a concern given the steep correction. Some of the smaller market indices have seen lows that have gone back to 2006. In this context, feedback from investors is fairly balanced. While there is a concern at one end, but they also understand that there is low valuation risk in the system. The preference right now for new money is to sit on the sidelines till things get a bit clearer.

What is the likely dent on the economy and the corporate earnings for financial year 2020-21 (FY21)?

The first quarter of the financial year (April – June period) accounts for 15 per cent – 20 per cent of corporate India’s turnover. If the problem does get resolved and the pandemic risks ease, it will give India corporates reasonable time to gear up for the second half of the year. Earnings will fall for sure, but there is little sense in trying to predict 2021.