In Indian market, good exposure to both IT & financials the sensible way forward: Jonathan Schiessl

“The risk reward for the IT sector was driven by different factors from the domestic banking sector. So, with IT, one picks up global exposure as well as obviously domestic exposure. It is primarily the global side which is what we are picking up, particularly with the larger cap space. On the financial side, we are picking up a domestic story with a very long runway. In a balanced portfolio, it is good to have exposure to both sectors as both are winners,” says Jonathan Schiessl, Deputy CIO, Westminster Asset Management.

How are you viewing this entire China Covid story? There is a lot of anxiety around what it means for the world, what it means for demand and what it means for commodity prices?
From the market perspective, what is going on today in China is clearly very important. If Putin remains the narrative, it will be a little bit difficult to predict what would happen but certainly from a market perspective, a gradual, quiet opening up of China would certainly be the ideal answer.

Everywhere else in the world we have seen an opening up and moving away from this zero Covid type of policies. If China quietly turns in that direction and there is some opening up, that would be very positive for commodities, for emerging markets and for markets in general because it is obvious the China issue has been pulling back global growth for some time.

If that issue gets solved, then that would balance falling US and European growth a bit.

Indian FMCG stocks have been expensive yet they continue to march higher. Britannia has made a new high, HUL is almost there, Dabur is up 6% and not far away from record high. What is driving the optimism in some of these stocks? PE multiples are north of 60-70, growth is 10-12% yet there’s buyers galore?
Yes, it is a difficult one. The valuations in that sector traditionally have been very high and so it is no surprise to see very high multiples. There is a structural growth story for many years ahead. So this sector is doing well today but if we see some sort of leadership change and China opening up in the next two months ahead, then leadership would perhaps transfer to early cyclicals as opposed to some of these FMCG stocks.

There could be a shift towards cheaper stocks but most portfolios would have a good representation of these FMCG stocks. They are very good structural long term stories but there is a price one has to pay for them.

Do you not like any of the Indian fintech or consumer tech stocks?
Well we do not necessarily like them. I am honest to let you know it is an area we probably need to do more work on. So, yes it is not an area that we are focussed on at the moment. We are mainly focussed on the slightly largecap stuff and yes including. We have not done enough work. I think there clearly are some excellent companies. We have not done much work and need to get more work done.

A year forward what will be outperforming? Will IT make a comeback or will banks extend their rally?
Both frankly are very good. The risk reward for the IT sector was driven by different factors from the domestic banking sector. So, with IT, one picks up global exposure as well as obviously domestic exposure. It is primarily the global side which is what we are picking up, particularly with the larger cap space.

On the financial side, we are picking up a domestic story with a very long runway. In a balanced portfolio, it is good to have exposure to both sectors as both are winners. There are some excellent companies that one can play in both sectors and so for any Indian portfolio that we have run, I would recommend good exposure to both sectors.

In the short term, one can reduce weightings or increase weightings depending on where you think you are in the cycle and what is going on in the global economy but ultimately, these are good companies which have good compounding returns. So, good exposure to both sectors is a sensible way forward.