What will Kenneth Andrade buy today?

We have been following different investment gurus across the world and applying their investment philosophy on Indian stock exchanges. While many international gurus have never invested in India, today we are writing on our own desi guru Mr. Kenneth Andrade. He is a famous investment guru and held in high regards within analyst community. True to our philosophy, we are keeping the language simple and contents precise. Hope you enjoy it.

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About Kenneth Andrade

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Kenneth Andrade is a well known name in Indian mutual fund industry who shot to fame after delivering market beating returns to the investors of IDFC Premier Equity Mutual Fund.

He is graduated from Mumbai’s Narsee Monji College of Commerce & Economics in the year 1990, exactly two years before India was going to India was going to onboard globalization train. He started his career as management trainee in a magazine “Capital Time” in 1991. He continued his learning journey by taking up roles of research analysts in 1994, followed by becoming an investment manager in 1996, handling a portfolio of HNIs & NRIs upto $30 millions.

His first tryst with a mutual fund company came when he joined Kotak Mahindra Mutual Fund in 2002. However, the bigger thing was yet to come as he joined IDFC Mutual Funds at a time when IDFC was taking over business from Standard Chartered. One of fund managed by him was IDFC Premier Equity, which very soon became top performing fund for many years. The fund asset grew from a mere $30 million to $1 billion. Such was the craze for this fund that people were willing to wait until fund house decides to open for fresh subscriptions. In 2015, he started another chapter of his career by launching his own PMS company, Oldbridge Capital Management.

Investment Philosophy

Kenneth, being a popular fund manager, has shared his investment philosophy on various occasions in his interviews to media. Kenneth’s investment philosophy is largely data driven which puts emphasis on balance sheet.

Based on his interviews and our interpretation of them, we can summarize his investment philosophy as follows:

  • Efficient Capital Allocator: Stock market is like an online marketplace, you can buy any stocks you like. There is no compulsion. Investors are spoilt for choice but with plenty of choice comes confusion. Market rewards only those stocks which show good profitability over long term. This can’t be achieved if management don’t have a good capital allocation skills. Money is finite (atleast now after end of easy money era) and no company will have all good summers. So key to survival as well as growth lies in efficiently using the capital in hand.
  • Low Leverage: Kenneth prefers companies with less or no debt on books. Debt eats away profitability, even if a company has good margins.
  • Survival of the fittest: In the market, there are always sectors which undergo up and down of a business cycle. Look for companies that have survived a tough period in business and still remains reasonably healthy on balance sheet. Do not blindly look at P/E ratios as it will be negative during loss making periods rather look for EBITA as a ratio of Enterprise Value. Once business cycle turns, such stocks can quickly give you multibagger returns. Having said that one needs to be careful to avoid value traps and it is a landmine. Be sure you invest with landmine detector on.
  • Low in Capacity Utilization:  Kenneth loves to invest into companies which are at lower capacity utilization and can quickly ramp up once demand is back without incurring new capital expenses. Avoid companies whose business cycle has been peaking up for last year or so and they are adding new capacities now. There are higher chances they will get caught with loans on hand and business cycle fading away.
  • Buy at right price: This is the toughest part to master and needs patience. You may have to let some overpriced stocks go in the process but it enhances your returns. Remember, market is full of stocks and you can avoid some opportunities where risk-reward ratio is not in your favor.

Stock Watch-List

Based on Kenneth’s principles and our own set of filters, we arrive at below set of stocks which pass the criteria at current valuations. Please take a note that this is not an investment advice as analysis is done purely on numbers and not on qualitative aspects.

We have selected stocks with a market capital of above ₹ 100 Cr but less than ₹ 1000 Cr which means that largecaps & midcaps are excluded from this list.

  • Majestic Research Services & Solutions Ltd. (Market Cap: ₹ 120 Cr)
  • Jiya Eco Products Ltd. (Market Cap: ₹ 154 Cr)
  • Cupid Ltd. (Market Cap: ₹ 244 Cr)
  • Allsec Technologies Ltd. (Market Cap: ₹ 419 Cr)
  • Alphageo (India) Ltd. (Market Cap: ₹ 438 Cr)
  • Stovec Industries Ltd. (Market Cap: ₹ 531 Cr)

Disclaimer: This article is not endorsed by Kenneth Andrade. It is based on his various interviews & other publicly available information.

Kenneth’s Image credit: Economic Times