Jonathan Schiessl on why defensive counters like consumption may outperform now

“The Indian market is at a high level from a foreign investor perspective. It is the pull and push of the China reopening. So some dedicated, emerging market money seems to be coming out and that will impact the big blue chips,” says Jonathan Schiessl, Deputy CIO, Westminster Asset Management.

Nykaa is almost in a free fall. But the intriguing thing is that even after this fall, the market cap is still at Rs 38,000 crore, whereas the first half FY23 PAT stood at Rs 10 crore. So just going by the valuation, it seems like there is further headroom for a lower stock price?
Yes absolutely and I would agree with what you are saying. I can’t comment on it too well if I am honest but yes your analysis seems pretty good.

Recently which space or stock has caught your attention?
The market continues to look very interesting here. It is at a high level from a foreign investor perspective. It is the pull and push of the China reopening. So some dedicated, emerging market money seems to be coming out and that will impact the big blue chips. Obviously Infosys numbers looked pretty good the other day. HDFC’s numbers look pretty good. HDFC Bank numbers were pretty good as well. So the bigger stuff continues to look interesting but there is a sort of a pull and a push with regards to the stock prices at the moment.

One stock which is bucking the trend today and is sitting at all-time high level is Larsen & Toubro. Do you look at that one closely and what is your view regarding the entire capex theme that we are seeing back home?
Yes, it is a stock that we currently hold and continue to like going forward. I agree with the earlier comments that it is one that periodically struggles from time to time but particularly for larger investors, it is the sort of proxy play on the sector and that obviously with very broad exposure across the sector and obviously the company is performing very well. So yes, we continue to like that one and it is an excellent proxy for the whole capex sector across India and obviously to a lesser extent in the Middle East.

What is your take regarding the entire consumption basket? HUL will report its numbers day after and ahead of that we are seeing a surge of almost 2-2.5% in that counter. Britannia is also showing a bit of a move. Having said that, consumption was not the most preferred theme last year, at least not staples. Do you expect it to change in 2023?
Yes I guess that is probably a reflection of the market being very strong last year. The whole consumption basket has continually traded fairly at the top end of the range. These are some very high valuation type names because obviously the underlying structural story is so positive. They remain expensive but with the market that we saw last year, there were other sectors which were interesting.

I think, however, the market is off a little bit from the recent highs. There are some on the side lines concerns. Perhaps some money might flow out of India towards other emerging markets and therefore the slightly more defensive counters like some of the consumption basket might start to outperform and see a little bit of money coming in., I would expect the names to hold up fairly well from here.

Within financials, are you broadening your investments or you continue to stick with the private banks or large PSU banks?
We probably will keep it fairly narrow with companies that we know very well. From a corporate governance perspective, there are a few names that we like and therefore we stick with those. Just from the way we look at India, keeping the narrow focus has always worked for us.

How do you assess the Indian IT pack now? Do you think the worst is priced in? Could these stocks be bought because largecap IT majors are all out with their numbers?
Absolutely. I would agree with you and I think we have discussed in the past, we have held a reasonable weight to this sector to keep a balanced portfolio. The expectations were not that high and obviously the numbers are probably coming through better than expected. So yes, we like this space and continue to have good holdings there.