Kenneth Andrade The Mid Cap Mogul Old Bridge Capital Mf Chronicles

TITLE: Kenneth Andrade: The Mid-Cap Mogul | Old Bridge Capital | MF Chronicles CHANNEL: Vikaas M Sachdeva DATE: 2026-06-02 URL: https://youtu.be/lHyzfC7FP04

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being an overlooked part to something which has become the cornerstone of every fund manager’s investment strategy. He entered the markets with a reporter’s curiosity and built his legacy spotting businesses before the market recognized them. From journalist to one of India’s most respected midcap fund managers, Danathanari on MF Chronicles. You’re one of those classical non MBA guys who actually come into this field through journalism.

Being a journalist who became an analyst, you used to cover virtually every IPO that was there. Your knack or your ability to read through, investigate, talk about them, publish right along your career. Did that help you get a competitive edge that I have the ability to identify winners beyond what you guys keep talking about? I looked at it a lot differently. I wasn’t looking for a competitive edge. I was just looking at what I can the next publication I could read and how much data can I store and I think that was the only thing I did in the ’90s as a midcap fund manager was your bet usually on the company the market share or what the promoter was. You maximize the niche out there and then that niche became an industry. So are we saying that the growth of the midcap segment per se as a fund okay after some time start to peter out because of its size. So it’s always difficult when you’re number one right because you get all the capital and you don’t know what to do. And I think that’s a story of of money managers. Welcome to another episode of MF Chronicles. Let me start by asking you a question. What is common between an electric vehicle, hard rock music, and midcap investing? These are unusual and bold choices way ahead of its time. The early adopters usually have to face a lot of criticism, a lot of cynicism, but eventually when it becomes mainstream, they reap the benefits of it. So let’s talk about the midcap space where new leaders, new businesses, new growth models proliferate at the fringe of conventional investing before they become mainstream. Over a period of time, midcaps have moved from being an overlooked segment to becoming the cornerstone of every fund manager strategy. Today we’re going to be talking to somebody who’s not only created a niche, a space for himself by identifying winners in the midcap space, but one would argue has actually given salience to the whole midcap space itself. What is common between EVs, hard rock music and midcap is our guest for today, Mr. Kenneth Andrade, the midcap mobile. Welcome Kenneth to MF Chronicle. Uh, thanks Vicas. Thanks for that generous introduction. Okay. No, it’s true, Kenneth. I mean, I’ve been watching your your journey uh through the years and honestly uh there are a few people you identify. I can name two or three people like you can identify uh you know value investing with a couple of people. They may be doing all sorts of things but you identify them with value. You identify some with growth. When it comes to midcaps, usually your name is one of the first which comes up and uh full disclosure, full disclaimer, I’m a big fan. So at some stage if it comes across that it’s a little bit of uh flattery it’s not flattery it’s genuine genulection is genuine admiration for a person whom I’ve seen come up through the ranks uh through the years but let me just uh and I and I know Kenneth you find it very difficult to accept a lot of which is coming your way but you have to just step out and talk to people and realize what it is all about. We’ve seen you over the years. It’s interesting. Uh you you created this whole medap space which was a very unconventional thing but your journey has been anything but unconventional, right? You’re one of those uh classical nonmbba guys who actually come into this field through journalism. Uh you know a very unconventional way into investing the way a very unconventional way to investing. Tell us something about that. Uh so it was a ‘90s. uh I don’t think uh our uh equity equity research was not really uh a trade it wasn’t a a profession uh in fact there was no one who aspired to become a um no one aspired to become an equity analyst let alone becoming a portfolio manager because at that point in time there were it was an industry which is dominated by the public sector okay and everyone was on deputation that is true Okay. So, it was a a segment of the market in the early ’90s wherein you had all the public sector with the uh w with with their uh uh with their subsidiaries and everyone who took over as CEO or portfolio manager came from came from deputation from the banking business. I think UTI was the only standout uh asset manager at that point in time. LIC did its bit but nothing of scale on the public markets. Uh so uh if you take out UTI from all of that uh I think you had a lot of people who who were not aspirational portfolio managers and uh virtually no analysts that was that was the early part of the ’90s and then things changed things changed dramatically. Correct. So if I remember correctly at that point of time you rightly mentioned public sector enterprises there were guaranteed returns uh and uh I remember one of the people telling me that one’s criteria for investing in a company at that point of time was if I’m going to be lending to that company I can also invest in the equity of that sure yeah is that something you also heard uh it was part and parcel of uh uh the cap table or the cap capitalization structure so there was equity and there was fixed debt at the same time uh and that’s how uh corporate India uh came through in in that in in that cycle. So so yes that was the uh that was the very very early days. Interesting why I’m asking this question is because somewhere one one would want to believe that uh by looking at companies which were not really on the radar of most of these uh organizations you actually started studying uh companies and looking at companies from very different perspective you know you were writing about those companies you were talking about those companies and these were what outside the index most of the time. Yes. Yeah. So how did that help you in terms of your investment journey? No, I think the journey was all about covering the breadth of the market and not so much the depth of it. And then you had u you had a case of India being all commoditized businesses, right? You had textiles which are very large business. Then you had uh the delicensing of couple of sectors and all those sectors came through in terms of capex and the entire just putting pieces together. So it was very elementary in terms of what you uh what what uh it was very elementary in uh how uh how how you used to put data together. Okay. There was Lotus 1 123 and used to work on those work on those funny sheets there. Uh okay there was no mouse pad. So I don’t know how many people can work without a mouse pad today. A mouse today. Yeah. Okay. So so that was the day. Uh the ’90s was all about commodities a lot about capacity creation. Uh so you you learned about the breadth of the market you knew every company at least being the advantage about a being in the uh uh being a journalist who became an analyst is that uh you used to cover virtually every IPO that was there. Yeah. That was quite a bit. Yes. And uh and it gave you a background on each company, each capacity coming in, what is the capital cost per capacity, what is the profitability per per unit, etc. etc. And that was the foundation of where where it all was. I mean everyone was doing it a little differently. Uh some of them projected demand, supply etc etc. But at the end of the day it was it was pure data. Um it was pure data assimulation because nobody assimilated data at that point of time. uh and the best guys to do to have any kind of uh database on uh on on corporate India was obviously uh the uh uh uh uh the magazines, publications, newspapers. Uh so that was the foundation of everything that was there. used to have large files like this uh in that in in in in the in in the journal that I worked for and each had an industry class each each file was an industry and all all press clippings on an industry used to be filed out there. It was very funny when you think back as to how we used to uh work. So there was a file per company and per company per industry per sector etc. So you actually had press clipping cut out and stuck and then going to refer because there was no such thing as internet the way we using it today right was it that perfect I’m just very curious to know since you’re mentioning this when you started off your career any stock which you were admiring at that point of time which is still alive and thriving I’m not going to ask you the market cap which has gone up but just a stock well the first company I actually invested in it was in 1987 or 88 was and it was through um through an IPO was digital equipments digital equipment. Yeah. So that got acquired by HP after that. Yeah. Yeah. Yeah. Of course. Okay. So there are too many companies from that era which still around. Of course Reliance is there in some format. Okay. Uh but I mean the Tatas are all also there in in very different formats. Okay. But but uh but there were a lot of large businesses in that era which are no longer in existence. One of the things uh one realizes at that point of time that the coverage of of stocks and companies was very restricted and very limited you know uh I think largely restricted to something around the sensics or just around that your knack or your ability to read through investigate talk about them publish right along your career uh did that help you get a competitive edge a sort of a mode if you is that I have the ability to uh identify winners beyond what you guys keep talking about because I don’t think there was too much of coverage at that point of time, right? U okay so I can uh I I looked at it a lot differently. I I wasn’t looking for a competitive edge. I was just looking at what I can the next publication I could read uh and how much data can I store uh can I retain and I think that was the only thing I did in the ’90s right I used most of it u obviously a little bit through writing but a lot through an analyst profile right through my uh right through right right through that entire decade so so so that phase of the market where actually you’re not trying to build up a more you trying to build up a competitive edge just trying to be relevant at that time. You know, it’s interesting uh that you mentioned this because uh one of the things I realized when you were when you are a person who’s reading a lot about companies and meeting promoters, uh you start forming an impression about the company, this is the promoter, right? So uh as as a midcap fund manager or as somebody who was studying companies emerging companies was your bet usually on the company the market share you know what it did or what the promoter was and if it was both then in what proportion actually if you’re talking about midcaps right uh so it never really dawned on me what was a large cap midcap and a small cap I knew index companies and I knew non-index companies and that’s how we started off okay it was a white space at that uh okay Templeton dominated that market. Yes. Okay. There was a fund called Prime Primotari Pioneer Primma Fund. Okay. Uh then Sundaram Midcap came through. Um and the competition around that was non-existent right so I filled in the spot after u uh after leadership passed on the bait to us. Uh so we’re just about fortunate to work in a niche. Okay. And uh when I look at it backwards and this is something I I also keep saying uh right you you you you maximize the niche out there and then that niche became an industry. So there was for a brief period of time I think even now midcaps as midcaps and small caps as a percentage of total assets managed by institutions are still the largest uh category out there. So that niche became an industry. So I just filled in gaps in in that in industry’s transition and then it took over by by the leadership itself. So so there was no rocket science. It was just no competition. Okay. Uh but it worked well. Uh but but it was obviously not me who started all of it. I think Franklin was a fairly large fund before uh Sunduram became a very large fund and then we took over and then there was HDFC midcap that took over and then then that journey actually continued out there. Very interesting. Uh you said that there were people who came in before you are funds which came in before you and and then funds which came in after you. So are we saying that the growth of the midcap segment per se as a fund okay uh would after some time start to peter out because of its size because you mentioned about leadership so I’m assuming that leadership is not just in terms of performance it’s also in terms of aum so x am aum grew much larger and the return started dwindling then y and then zed and then yours and then a and is the surmise correct um in a way yes or no yes and no um sometimes when you uh uh so so It’s always difficult when you’re number one, right? Because you get all the capital and you don’t know what to do. Okay? And that gives way to someone else who’s a lot more agile. Okay? Uh and I think that’s that’s a story of uh of money managers, right? So the minute you get you inundated with with money and it’s usually comes at the wrong time, uh you struggle to gain uh you you you struggle to put that money to work. And when you struggle to put that money to work, obviously someone else bypasses you because they don’t have the same challenges till they get through the same challenges again. But the but the nice thing about midmarkets uh uh investing in midm markets is uh is you can organically grow your AUM quite comfortably, right? So if the market at that point in time was giving you say inflation plus kind of a return which was easily north of 10% or 11% or significantly north of 11%. Right? Uh you could compound the capital very aggressively. Okay. So it was not unheard of of getting 20% compounding for for for a decade or even even more than that. Right? So it was not unheard of at all and that’s and that’s what helped AUM be where they are. So one is inflows and second is compounding by itself. And you have a lot of uh new industries that came through. A lot of smart entrepreneurs who actually uh uh put put the business together and most of them were looked at very skeptically, right? Uh so so like I said it was a niche capital was not getting pushed towards these companies. There’s a lot more work to be done. uh the companies were so small that they never got covered by sellside side because if I covered by sellside side how much brokerage can I make out of it is not much so let me bypass it uh and that’s why valuations were right that’s why the companies uh uh companies were aspirational and and as a country we had growth spurts okay we had growth spurts and all of this came in with uh deregulation of a number of industries so so you put everything together and you had a confluence So I was just right place, right time um with the right amount of money and uh and that’s what transition. I just I just guess the 2010 to 2020 were uh were very nice years to be uh productive. It’s not that this decade is not because there’s so many changes that are happening in the environment. I’m sure that the next decade is going to be much better than what what what it is from a global investing perspective. Uh I agree with you on that. In fact, I started off this conversation by saying that uh midcaps are usually a discovery engine. Yes. And you’re actually corroborating that by talking about a lot of companies which are beyond the index. Right. Earlier probably in 2010 to 2020 the choice was not as humongous as what it is now considering companies coming in. So at a midcap segment at a fund management level how do you uh how do you glean such opportunities? How do you sift through them? because the sheer number of industries has increased manifold. Correct. So take us through your thought process. So so we’re not so when you approach your entire business, you are not really looking for scale. Okay. Okay. Uh what you’re looking for is uh a nice nice company which is available at a very very nice valuation and there are plenty of them at that point in time. Okay. So the framework of ’90s and and uh and and when you go through the ’90s you would you would most most often lose more money than you would make it. Okay. Or that that was my experience in the ’90s and to preserve capital you always used to invest in u invest in companies where you found the valuations in a sweet spot and I think that’s the DNA that we look for when I when I was putting um money to work on in an institutional framework. uh but I just rewind that a little bit because through that course of the ’90s and when you hit that tech bubble okay you got a growth part of the market which is unexplainable okay and that’s where uh you got sucked into the cycle so the investing cycle in 2000 in year 2000 was and the first bubble that got created in the mutual fund space also you got a tech bubble and you had tech funds true okay and the only uh only part of the market that got money were tech funds. That is true. I think I’ve been there. Yeah. Yeah. We all we all there. And the funny part of that that that marketplace, right, is that you you made disproportionate amount of money in 2 years, right? And u and no one knew what happened and no one knew how how it would correct. Now I’m talking about this because this is my learning process on how you quickly uh switched back to uh what what worked for you best. Okay. So you got caught in this growth cycle and then you thought you knew everything about technology because the stock prices were building your conviction. Your conviction was taking the you thought was taking stock prices higher and it just fed onto it all. And by the time the entire cycle was there uh from the peak of the market to the trough of the market, my net worth was 1% of what it was at the peak. Wow. Wow. Okay. Okay. Um and that’s a corrective action that took place between 2003 to 2000 to to where we are today. Uh so so so I guess uh midcaps uh new industries uh available at a price. Okay. Uh is is what is what is what was the formative part of my entire structure. And the second thing that I realized through that course and most of us did is is what happens at the top uh so what happened at the top was uh you got a bubble in tech. Okay. And everything else was available free of cost. Correct. Correct. Okay. Uh fast forward to 2008, a bubble on the top in terms of commodities and uh infrared said and everything else was available free of cost and that was what my experience not very long back not very long uh long ago converted into a portfolio avoid uh avoid the parties. Interesting. So I’m very tempted to digress and ask you that what do you think is at the top now and what is available free of cost. So it’s a little difficult to where we are right now but then I I still think uh and and when I look at uh corporate I will look at market cycles right uh the last five years is always extrapolated by the investor into the next 5 years. That is true. Okay. And uh when I uh when my investment team comes to me and says that but the stock is cheap at 20 times earnings and I look at the guy and I says like 20 times earnings is cheaper. Okay. Because that’s what they’ve only seen. Okay. And they’re talking to so so we can’t extrapolate far away into the into the past. But if you take an aggregation of all of that and you build it forward, uh you will you will bring some rationality on where where and how do you want to build portfolios. So, so right now I think we are comfortable. Okay. Uh but we’re waiting for an accident to happen. I’ll probably leave it at No, I think it’s it’s a very fair assessment. Uh in fact coming back to the midcap segment I think uh one of the things I realized as time passed uh that there are three things which started happening to midcaps. One is there were midcap funds some of them you’ve talked about. The second thing is the infusion of midcap in large and midcap portfolios. Yeah. Okay. And the third is uh the midcap indices. So we’ll come to the third one later. I’m very curious to know uh your thought process in terms of building up midcaps in a diversified equity portfolio to generate that alpha. So what was the process? Why did one have to go to midcaps when it was a diversified equity fund and you could easily stick stuck to large caps? Uh what was the thought process which made fund managers like you step into midcaps that much more assertively? No, it’s not about it. It’s genuinely trying to find a good business and it’s not that large companies can’t become midcaps, right? H okay and large companies actually trade at uh at their total capital investor which is their book value they obviously midcap now you take you take a couple of sub subsegments that exist in most of Indian agricultural businesses today or agricultural inputs agriculture processing businesses all all small caps and all caps now they might be uh they might be the largest in their category um but unfortunately The market is large and it’s a very very fragmented market. Okay. Your entire telecom space started from where? It started from being a bit midcap. Where did your it come from? It started off all becoming small companies which became large. Okay. And and they just find the mojo they found that industry side and that and what what today’s investors recognize totally addressable markets continue to keep growing. So so I think you have to there multiple things that feed into it all. Okay. One one one business that u um I’m always identified with is a company that makes inner wares. Makes innerware. Innerware. Yeah. Okay. Everybody know. Okay. So what what made Jockey so so popular in in year 2000 to 2004. Okay. It was simply a aspirational product. After jockeying what did you have? VIP. After VIP what did you have? Nothing. Correct. Okay. So all it was there is that it was an aspirational product stuck in a certain group. uh and uh you could see it because you could feel the customers gravitating towards that that particular product and that’s where it became a tiny business to create an industry around it. It was a tiny business in a hosery segment as it was known at that point in time and it created a 2,000 cr brand after that in just one yes cycle. Yeah. Yeah. And then there was Madura course was doing something similar in form with their shirts right cash flow generating business very low inventory very high cash flow generating businesses and all of this this was around at at at that that point in time. So these are small businesses that exist uh in large industries uh and all of them got consolidated. Okay. Uh and that’s the journey that uh that small mid-market companies uh express themselves going forward. So, so the draw of small companies is because they can become significantly large. The problem with it is no one gives them time. Uh interesting and I I’m going to just pick up one of the threads which you have given me to work on. Uh you also mentioned in this conversation about taking a niche and growing in that niche. Okay. uh at a midcap fund level uh when one is looking at stocks to pick up as a fund manager uh what is the more dominant thought that you because I’ve often heard you mention that you love companies which will take up 60 70 80% of the profit pool in that segment right so top three or four companies so you would rather go for a dominant company in that particular niche or you would go for a company which is valued reasonably uh at that particular point of time and it may be sixth or seventh not as much as part of the profit pool what occupies your thought process the most the most dominant part of the profit doesn’t matter what the valuations I mean reasonable valuation because he’s if number six and seven is making money in that industry and there’s a problem with the industry can you can you explain that further that’s very interesting so so what What what the last 20 years of watching watching industries evolve, right? Especially in the commodity part of it all or even in the non-commodity part of it all is the dominant one two three can push profitability of the others down. Yes. Okay. U so let’s put it this way. Uh you got number one making an u an industry is fairly consolidated. There are two three participants in that industry. uh that industry is become so reasonably profitable that it deres a 30% return on capital employed or return on roe okay return roe now there’s a draw from from that business to increase capacity there’s also a lot of attraction from everyone all other investors to feed into that industry okay now when all of that happens okay uh you’ve got a fragmentation of that business so no business grows at 20% in perpetuity. Oh, no industry sorry no industry grows in 20% in perpetuity. But when you have capacities coming up at this random pace, you just fragment the business on multiple players and all of them are profitable for a while okay till the last bit of companies come in and take pricing downwards. So pricing is always determined uh okay by the stragglers okay because they want to stay relevant and that is the best card to play and and that is the worst part of the industry that is there best card to play the worst part of the industry okay and they bring the whole market down so when so when when an industry is operating at 30% margin and someone comes with bank finance at 9% 9% cost of capital Okay. Uh rest assured uh you the return profile of that industry is coming close to 9%. Very interesting. Okay. So, so again I uh I keep speaking in contextual language that I like dominant part of that industry because we’ve got a survivor bias who who who that survive bias will come back to dominate the industry in the next cycle because the stragglers will sooner than later leave. Very interesting. You know there’s a book which I read uh which has uh it’s a book called how fund managers make you rich and I think you’re covered in one of the sections. I think you mentioned a very interesting thing there uh which caught my eye of course for the right reason and wrong and you mentioned that you love backing promoters uh which are less 45 years or lesser in age the 40s. Yes. 40s. Yes. Okay. So yeah. Okay. And uh you mentioned a couple of names uh which you thought were going to grow much faster than what the existing set of uh successful businessmen were. I was told so but it actually turned out to be true. It actually turned out to be true. Uh no it’s a very it’s a very different question I want to ask. It’s a derivative of what I asked earlier. Does a young promoter mean more success at the anvil or does a more experienced promoter who’s been there, done that mean more growth? So, so age you’ve got to identify a right age profile where you where you made initial mistakes but you still got the energy and you and you got the financial backing to do everything right. Okay. and then you have a long um um and then you have a long window or you got a long runaway to manage that company once it starts growing. Uh I think those are the characteristics of certain age profile of people uh that can uh that can hold a growing business together and step on the accelerator when required. Secondly, at a certain age profile, they also earn a lot of trust from their uh from their uh uh from from the management or from from the from their employees who all participate in growing that entire entire business. Okay. After a certain age profile, you lose the ability to take those risks. Interesting, right? And before a certain age profile, you make too many you have your risk appetite is going through the Okay. Okay. So it’s like an investment manager is that I’ve seen one bubble. Okay, I will not make the same mistake in the second one. Okay, that’s if I survive the first one. So if I survive the first one and have gotten to the second one, I’d be uh a lot more uh cautious into uh I I I I’ll have a lot more risk guards in place. Okay. So I think that’s what the sweet spot was all about and most of these business most of these companies actually delivered also who actually delivered uh and uh and if the environment did well they did well with it. No it’s such an amazing thing which when you contextualize this statement of how important failure is in life. Mhm. And that is a sweet spot. Survivor bias. Survivor bias. Yeah. You have to have that in a portfolio. Okay. Any company that survived in the in in a down cycle is going to he’s going to take a significant part of the profit pool in the next next round. But anyone who made a mistake in the first cycle okay u and and and the management is of a very different age profile uh he just uh he loses risk appetite completely. Very interesting. Very interesting. Uh so uh in fact since you mentioned that um you’ve always been uh how do I put this? I I’ve been following your career for a long time and you’ve taken some bets on certain structural growth stories. Okay. Uh and you’ve also been very vocal about the fact that you would not invest in certain industries. I’m not saying companies. Companies of course is your but certain industries. you’ve actually gone on record saying that that I will not invest here in these sort of industries. Uh so uh when you are taking a bet on certain companies as a fund manager uh are you looking at uh say a 10 15 20 year story or are you also looking at what stage of the cycle they are in as in is it the at the industry is in is it as a initial stage is it at a reasonably mature stage is at a large stage because each industry will will have a growth cycle as well as a valuation sort of a metric what influences your decision as a fund manager the most as in I’m talking about midcaps so there are two things that need to come in one is valuation cycle you get right so if you get a valuation cycle right you know you you most often in midcaps only can you just elaborate a bit more okay so so you don’t get a cheap stock if it’s it’s in a great industry doing very well yes okay if it’s a great industry everything is doing very well most of the most of the small companies are trading at large cap valuations or large cap. So pick an industry which is not doing well. Pick the largest company and 90% of the time they are in their midcap categories out there and I think that’s why that’s what that’s why whenever we create portfolios a lot of these companies come in that fit that structure. Okay. So I had pains to uh tell uh the underlying investor that is not that we go out and buy midcaps. We having large companies that have been smashed by the market and ignored which makes them where they are. Which takes them where they are. So we just like a bad part of the cycle. Okay. When an industry doesn’t make money and one company makes all the money within that industry. If you get that that right, you should we usually we usually present in that business. And what are your filters? Uh you know in midcaps like you’re rightly mentioning getting the cycle right is also very important. So what are your filters if uh uh if if one were to evaluate stocks that this is the cycle I’m entering it’s probably at the right time. Uh so in investing uh whatever I’ve learned is I’m already taking a lot of business risk because I’m timing this business cycle. It’ll end at this point in time. I will not take a financial risk which means the company has to come without any debt on their books. Okay. Okay. Why is that so? Because I need to survive that cycle. Correct. Correct. Okay. filters but you’re making it sound easier than what it is. It is. So you’re saying that uh at the end of the day if one as an investor wants to invest in the midcap segment uh one has to keep things very simple you you know you’re getting into again it probably feeds into the survivor bias thing which you’re talking about survivorship bias which you thinking about but I want to push you a little bit more as a fund manager this cannot just be this you know when you’re sitting down evaluating companies what are the other signals you look at that you’re entering the cycle probably at the right time no we don’t look we can never be right and I have accumulated stocks for 3 years and four years and they haven’t done anything. I’m sitting on one company which is the same for the last 10 years. 10 years. Huh? Yes. And it’s at the same price. Okay. All right. Uh it’s because we’ve got so much of it. Um um and it’s not that we have so much of it. I can sell it over the next 3 years and and because it’s so it’s so cheap, I won’t lose too much of money. uh but you’re just waiting for that right price point or right right change in in in in the in the structure of the industry. Now when I say structure of an industry right you just waiting for the time that the industry becomes profitable and grows profitability significantly. That’s that’s an upcycle in the business. So you have to wait for an industry that that starts build that starts growing profitability. Okay. and by the business out there which is already a dominant part of the entire industry pool. It’s fascinating. I was just trying to correlate with your personal choices in life. I think you got into buying an electric vehicle much before everybody would have heard. I I remember your Reva, right? You were the only guy driving a Reva in Bombay. Mhm. So you were way ahead of the curve. You really want to talk about that? No, I’m amazed because you actually uh Mahindra picked up the entire company later on. M and I have been particularly fond of the RAA by the way I used to see it and uh in my previous company one of my earlier companies in ING you know outside bank there used to be an orange colored RA standing there so I’m amazed and you actually you were way ahead of the curve I don’t think anybody ever saw a rea on the road till that time you started getting amazing choice uh you’re not putting that in for sure no weed we did that I do want to mention about the rea thing I’ve always admired you for that so you I And talking about unconventional choices, you’re one of the few people who’s gone on record and I think uh you speak for a lot of midcap fund managers when you say this that you don’t mind losing ranking in terms of the sweep stakes if you are convinced about the company which you’re holding over the long run. Yeah. So uh how does this play out? You get into a stock you say something not move for 10 years and it started affecting your performance. How how do you play out that scenario with your investors uh with your teams? No, you can’t always be number one, right? Because the minute you’re number one, there’s only one place to go. Correct. Correct. So, what is consistency? Consistency is over a long-term life cycle of a fund that is there. you are there in the top dile okay I wouldn’t say percentile though you like to be there in the top percentile but in the top dile and during that entire period of time okay uh there are conversations that you have with investors u and it’s not as difficult as I think as people make it out to be because we’re as long as you’re not marketing the wrong stuff or you’re not telling people the wrong stuff you find alignment of investor with you over a long term and and that’s what you tend to do. So you’re either a uh you’re either a asset gatherer or asset manager. And once you’ve chosen which side of the coin you want to be and there’s no no problem being either of the two because uh it’s not just a business model. Uh you got real real GDP growth plus you got inflation. If you got nominal growth in in GDP the uh the asset class itself will deliver you return. So there’s nothing wrong with both of them. But with the latter what we chosen to do, which is being an asset manager, uh you will have those cyclical performances. But as long as you can you can flip it over and keep flipping it over again and again, we should be you should be okay. Uh the the second thing is that you also manage portfolios, right? So you have 20 companies. one company if it starts determining your DNA uh the DNA of your fund uh or the return profile of your fund should not it’s never the case it’s never the case so so there are multiple factors that go into all of this but the key to all of it is you should know your investor should know what you do so for that you extensively communicate with investors and you talk to them uh I’m all over the place right you pick up what Kenneth does from 2015 to 2025 I probably still saying the same thing I said in 2015. Very true. Okay. So, nothing changes except the stocks and and today morning I was just uh uh meeting a few companies at at the at a conference. I just realized when I walk in I tell the guy that I’ve been a shareholder with you for for the last 7 years. The second guy said that I was with with that same company for the last 8 years. Okay. So that’s a longevity of holding that is it’s not that they haven’t done well. All of them have gone up some 10x or more than that. Uh but but once they’ve achieved where they are, they will have to go sideways for a while and then they build on it all. Right. I think most of the people today when you read in the newspapers the coverage which comes in about funds, it’s usually compared to the benchmark. Yeah. Saying this has outperformed the benchmark for the right reasons. uh but I’ve often heard from midcap fund managers that it is very difficult at times most of the time to outperform the midcap index okay uh especially in recent times when there were two or three stocks which actually dominated and uh you know ramped up the returns so at that point of time uh how how do you how do you assess things how do you communicate how do you implicate your shareholders uh you know saying that this is what it is the index is doing this but we are doing this this underperformance. How how does one get around that? So I’ve had this problem only for probably 3 years in my entire career. That’s interesting. So please enlighten us how you handle that problem. Yeah, you didn’t have to handle it. You just have to go through the situation, right? Uh and you you can’t explain to an underlying investor. See, in our trade and in our profession, okay, the stock price, okay, determines the narrative of the street. The stock price determines the narrative on the street. Okay. Okay. And if you missed it, you missed it. Okay. So, whatever you say, the stock price is saying everything different. Very interesting. Okay. But when it stops and and and what you built up over a period of time, you just catch on to it all. You Okay. So, we missed pharmaceuticals in 2015, right? Uh that 18/19 period that was there. uh we missed the bank, private sector banks and consumers. But that was a 2-year period that was there that was that was extremely painful. But whatever you put out there and even if you told investors that your portfolio is trading at seven times earnings, they they had switched off because they they they were talking about a growth market at 30 times price earning multiple, right? And those things uh didn’t make sense to me. That didn’t make sense to us. So we stayed with the conviction and over a period of the next four five years uh the cycle flipped itself over. So underperformance uh you can’t explain it to the underlying investor. You just have to have the patience to go through that entire cycle. There is a subset of investors that understand what you do. They’ve seen what you do. They like your narrative and you’re part of the diversification for them. So not all investors would I mean not all funds that investors hold will have the same set of stocks. Y okay there’ll be one that they’ll want diversification. You try to go and fill up that gap. So we are gap fillers. Very interesting. uh one of the things uh I found it very difficult uh as a CEO was to talk to my fund managers about risk management and in risk management in particular in equity about uh whether your risk management framework is throwing out a time to exit a stock that was very difficult at least in terms of midcaps yeah uh whatever parameter you want to talk about you’ve been at both sides of the fence you’ve been a fund manager reporting into you know a CEO at one point of time and now you are uh you are managing the business. Two questions. One is how do you see risk management as an enabler for the entire function and two is what is the change in perspective as a CIO there and a founder here that has led to this risk management? Um so I’m a CIO and a founder and I’m a stock picker. You put them all put three together and see what dominates the entire personality. The latter dominates the former. So I will always remain a at heart an analyst and a stock picker and then putting portfolios together and then a founder. Neat. Correct. Okay. So that’s the foundation of what we what we do. How do you control the framework? I think it’s all all about due diligence. Due diligence. Due diligence and you put have to continue to feed onto that. Uh you don’t take excessive risks. Okay. Okay. When I say you don’t take excessive risk, uh whenever we try and build portfolios, I encourage people not to put uh uh not not to weigh their uh stock preferences based on their conviction. Okay? Because conviction is subjective to the amount of information that you think you have. Correct. Very nice put. Yeah. Okay. So, so that’s where you that’s where you begin. And then you continuously try to trim uh try to contain it on the other side of the portfolio. When I say the other side, if something is doing extremely well, the stock price is telling you things are happening better which increases your conviction to that entire. So you have to keep your conviction away from uh uh from taking excessive amount of risks. If I can flip that question and ask you uh you’re sitting in a portfolio evaluation exercise and uh the bet you have taken has done very well and it’s reached a particular price let’s say you picked it up at 20 bucks now it’s 200 bucks hypothetically you’re still convinced about the stocks you’re saying it’s a good stock but the market has started discounting that stock yes yes yeah you’ve been through several situations but I’m just trying to understand it for my audience’s uh thing it starts falling. At what stage do you start thinking that probably the market knows a little bit more than I do and it is time to prove my positions. This should be on the way up and not on the way down. Okay. And uh there’s an underlying cycle to it all. So if I’m if I say that my entry point in a business is based on valuations and uh say I like I bought a business at 10 times valuation. Okay. Right. hit the growth patch he moves up everything is cyclally right I’m not the same investor if I buy the stock again at 35 times earning multiple correct right correct okay and at 40 and at 50 times multiple I’m not the same investor risk profile has to change very interesting okay so at a certain price point and a certain size of the uh uh holding uh yeah someone needs to step in okay but the The reverse also gold’s logic. Okay, what happens if you bought a stock and it’s down 50%. And there’s something called a stop-loss or you revisit the idea say that maybe uh the market doesn’t perceive things the way we perceive things. And if you’re fundamentally still on the same track, you know where to recycle your gainers to to buy again. That’s very interesting. I think uh that’s that’s quite interesting and that also helps you manage your stakeholders a lot better if you can make this conversation with them right yes because your stakeholders necessarily have to see what how what action you’re taking on a certain in a in a certain company in a certain business in a certain stock I have a couple of questions uh maybe last couple of questions which I want to understand and one of this is my favorite question to all active fund managers about passive investing about passive investing. Uh there are now midcap ETFs. Yeah. Yeah. Okay. Uh there are actively managed midcap ETFs also. Okay. Uh and passive investing in India has actually grown quite substantially. Uh maybe it’s on the front line indexes more than the midcap indexes. uh in midcaps, do you think that active fund managers still have a structural advantage or is that starting to diminish uh visibly outperforming the benchmark? So as active fund managers, if there is a 150 stock midcap index uh and there’s a universe out there, does this 150 stock midcap universe capture most of the gains uh finding making it very difficult for you to actually outperform the index or there are still opportunities out there? So if there 150 companies and you’re buying all 150 companies, okay, you’re you’re diluting the ability of one company to actually deliver outstanding numbers, okay? And what comes from and what I mean it’s the same bias, right? uh if I’m if I’m a company which is trading in an index at say an 80 at the 80th position what does it take to go to the 70th pos 70th position then to a 60th position then to the 30th I think that’s the journey of how you look at that 150 companies I’ve got nothing against passives okay uh they will they are here they will stay they will be dominant uh but when you’re investing in passive uh you’ve just given up on trying to make more money than the underlying index As an investor, you’re just giving up the probability that someone will get it right. I hear you. Okay. So, nothing against passives. Passes will be dominant. It’ll still be 70 80 90% of people’s allocations depending upon their risk profiles. But that 10% 15% or 20% of their allocation will still be looking for managers who can do everything. Right. Right. So, so that’s a space that I uh uh we’d like to take and we go out and say we are active managers. We want to be active managers and we define it and and some of the products that we put together is almost 85% active weights. Yeah. I mean if Columbus was following the map then he wouldn’t have probably landed in India. Right. Perfect. So you did a map which is the ETF but if you want to discover new things on a path to discovery active fund managers are the way to go. Uh which brings me to my last question Kenneth. uh now seeing things now in the next 10 years 15 years when you do crystal ball gazing which are the segments you think y uh will do well just one or two top of the mind I’m sure you already have your wish list ready uh and if you can also tell us what in your uh view is overrated as a segment two or three sectors two or three themes um I don’t know if I can talk about the next 10 years but let me give it a guess Okay. Uh uh what we see with energy transition happening, right? Um I think there’s going to be a a fairly large scalable opportunity out there to capitalize on it. What in energy transmission in in in this change in the the structure of uh energy that’s coming up is going to be a dominant part of our entire ecosystem. I’m not very sure. But I’m very sure the fact that fossil fuels may not be around for too long. Not for anything else. I mean they’ll be a dominant they will still be around but uh I think renewables will be a large far larger part of the entire pool. uh not for anything else because the economic um the economic cost of generating power out of renewables today is much much lower than u uh than what you can do out of conventional uh fossil fuel. Really interesting. Um that was one and secondly the time to market is also ex extremely short. So the amount of power capacity you pick up on the put up put together in renewables at a period of time okay your guest station periods are extremely low. So I think that that’s one big shift in uh in in what what I think will uh will happen over the course of the next uh next decade. Interesting. Uh you’ve not touched about the holy grail of AI. uh if I can just push the envelope a bit more and ask you your view on AI in terms of uh how it is changing the face of the industrial landscape, the economic landscape and of course the stocks you invest in. Uh I mean one thing u I think uh I hope AI never learns is to imagine. Very true actually. Okay. And uh and as long as you’ve got that advantage and as long as you can push the boundaries faster than everyone else, it’s just another human being competing with you with with a lot more um with a lot more data with a lot of lot more computational skills etc etc. So you don’t you don’t need to compete with it. You have to make a space in that entire ecosystem. You have to make a space in that entire ecosystem. But yes, it’s going to be a challenge. It’s going to be a very different world out there in the next decade and Terminator judgment day is yet away. Uh we we’ll see how this all transitions. I I think uh just off the uh you can I mean simply put together there’s a lot of competitive intensity within the AI engines also. So you will continue to keep throwing AI engines at AI engines till you be you still have personally I think AI is here to stay. It is here to stay valuation of AI that is going to burst any time and that is the bubble which is waited this is the bubble of right now is my view 26 AI is a bubble what was in 2000 uh well I’m not in invested there so it doesn’t matter to me great thank you so much Ken for your for your for your views we’ll probably have the students ask you a couple of questions sure go right hello sir my name is Deepak Shiao you are known for identifying stocks which are undervalued so How do you spot a bargain in agri stocks without ending up in a field of weeds? In the middle of weeds. Weeds. Yeah. Uh so I I don’t know agree stocks or anything. I just have to rephrase the way we actually work. We just look look to buy capital efficiency at a price. Capital efficiency at a price. And at some points in time it comes into uh a business like agriculture, agrochemicals or or or any agree input companies that are there. Uh so that’s all that we tend to do. This business is so cyclical in nature uh that at most points in time most points in time um there are there are one or two businesses that are profitable and everyone else loses money and that’s the turn of the cycle. Okay. And and that’s where you uh and that’s that’s where you enter enter some of these names. So So the last thing that we do is buy the smallest company in that industry. And it holds true with this index also. So as long as you’re not buying small businesses on relative valuations, you’re safe. Okay. And that’s our approach to any industry including uh agriate food company. Hello sir, my name is Soa and my question is which macroeconomic indicators are you currently watching most closely that the rest of the market might be underestimating um among this like unstable times AI bubble war uh I’ll be right if I say none because uh when when making presentations right in the last one year one and a half year I have moved from making a presentation to say what’s happening in US trade wars which no one remembers what’s happened with the EU uh uh uh the European Union trade deal which everyone’s forgotten to move to what’s happening to crude and its problems that are there at this point in time and if you step backwards there are so many macro changes that have happened with the environment that we’ve been able to adapt and we’ve been able to move. So macro changes brings you incremental amount of volatility that’s there. uh but that incremental amount of volatility also gives you enough and more opportunities that you can scale in your portfolios. So I’m not a macro watcher okay but any deterioration of a macro and if uh any deterioration of macros and companies give you a nice chance to get into those businesses we present there. Good evening sir. My name is Pachi Sharma and my question to you is looking at the beginning of your journey, is there something you wish you had known earlier? Something that you learned later. Yes. Yes. I wanted to know yesterday’s stock price. Okay. That’s all you need. You need to know when the market’s going to close tomorrow and you’ll start today. But uh that’s not going to be there. But no, I don’t think there’s anything that I’ve seen in my entire journey that I want to know incrementally better. It’s a it’s a learning curve. I think you learn every day at the job. You learn new things uh and you you learn new businesses and you you you also learn with much more mistakes that you’ve made. We started the episode by talking about midcaps as a discovery engine. And along the way with Kenneth Andrade, we discovered the world of midcaps and midcap investing. I found this to be a fascinating journey. how a midcap fund manager thinks while he invests while he disinvests, how he looks at promoters, how he looks at risk management. I hope you found the same interesting as well. Do let us know about your feedback in the comment section. Thank you once again for watching MF Chronicles. Have a nice evening.