Andrade: Why I'm Avoiding Indian IT Despite Valuations
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- Kenneth Andrade, founder and CIO of Old Bridge Mutual Fund, says Indian markets have been range-bound since the September 2024 highs, but expects earnings growth to shift into double digits by year-end as rupee depreciation lifts exporter realizations.
- Old Bridge Mutual Fund is underweight banks, lenders, and parts of insurance, and currently holds zero exposure to IT, while overweighting pharmaceuticals and automobiles — sector positioning that is identical across both the Focused Fund and Flexi Cap Fund.
- Andrade is avoiding IT because, despite attractive valuations, the industry lacks earnings visibility amid automation disruption and uncertain constant-currency pricing, and pivoting organizations of 200,000–600,000 employees to new technologies takes time.
- Indian pharmaceutical companies face a roughly $70 billion addressable opportunity as nearly $750 billion worth of innovative drugs lose patent protection between now and ~2035, with Andrade calling India's manufacturing scale and cost competitiveness difficult to replace globally.
- Indian automakers are building global franchises — one leading two-wheeler manufacturer recently reported international sales exceeding domestic sales in a quarter, a signal Andrade cites for the sector's next leg of growth.
- Old Bridge's Focused Fund holds around 23 stocks with an average position size of ~3% and minimum ~1.5%, while the Flexi Cap Fund holds ~35 stocks, with volatility reduction via broader diversification being the primary difference between the two products.
- Andrade flags crude oil at $120/barrel as the single biggest external risk for India, followed by rupee stability, though he remains reasonably optimistic on corporate earnings given improving export volumes and better rupee realizations.
Why it matters: For investors benchmarking active managers, Andrade's thesis matters because he is explicitly passing on one of India's cheapest large-cap pockets (IT) — not on valuation grounds, but on structural ones (automation, scale, pricing). His overweight in pharma leans on a concrete $70B patent-cliff opportunity through 2035, giving the call a multi-year runway rather than a tactical trade.
