Old Bridge Capital advises cautious approach on high market valuations

Old Bridge Capital Management expects macro events to trigger the fall in market next year with the valuation hitting new high.

Kenneth Andrade, Founder & CIO, Old Bridge Capital Management, said that a fall in the market can be triggered by many events such global crisis, implosion in country’s balance sheet and drying of liquidity in the market.

“I think it is only a macro event that can suck liquidity out of the market and even if it happens market can bounce back given the back-test experience,” he said.

• Also Read: Old Bridge Capital gets final nod from SEBI to launch MF biz

Numbers suggest that bankruptcies and insolvency are off the table and then there is only valuation risk which could remain for extremely long periods of time like seen before, he added.

The market capitalisation to GDP ratio signals potential overvaluation and suggest caution as the market may have priced itself well ahead of the curve, he said.

There will be a gradual, time-based correction rather than an abrupt, point-specific correction in asset and capital markets as some economies may decelerate, while others emerge with substantial GDP growth, he said.

Cautious approach

Advising cautious approach in certain segments due to potential overvaluation, he said the resilience displayed by corporate India and the strategic opportunities in both manufacturing and services sectors are encouraging.

Governments and central bankers have become more attuned to the economic environment. They are responding by injecting liquidity into the system to sustain overall economic well-being. This proactive approach is crucial for maintaining healthy capital markets, he added.

• Also Read: Think before you click: Beware of those ‘unmissable deals,’ they could land you in trouble!

“The global economy has experienced a transformation with the relocation of supply chains back to individual countries due to regional conflicts. The shift in supply chain has initiated an unprecedented capital expenditure cycle, contributing to substantial economic development,” Andrade said.

Despite short-term challenges, India presents a compelling outlook with higher growth potential compared to its peer in the region.

The macroeconomic and political stability, coupled with government capital expenditure, further enhances the conducive environment for business and investment planning, he said.