Stock strategy: The market has had a decent recovery in the short term, but problems remain: Jonathan Schiessl

“We still like banks in India and will probably focus more on private sector ones than public sector ones. I also think the way the market is right now, it’s better to focus on large-cap stocks rather than smaller-cap stocks,” says Jonathan Schiessldeputy director of investments, Westminster Asset Management.



A lot has changed since our last conversation. The market has racked up gains of nearly 800 points, crude has fallen, and many factors are also moving in parallel with what is happening in the market. Where do you see it going from here? Is the worst behind us?
That’s the $64 million question. Clearly markets have become very oversold in the short term, sentiment remains quite low and globally some of the fastest growing markets have rebounded very strongly over the past two weeks and the dollar has risen a little weakened. This is a boost for emerging markets as a whole. So markets have had a reasonably decent short-term rally, but there are still issues that we haven’t resolved. In the short term, sentiment bottomed out and it was definitely due to some sort of rebound.

What happens within the computer pack? We saw some weak numbers starting with the big boy TCS. today caught up with him. After a big sell-off following weak TCS numbers, we saw back-to-back buying come to lows. How do you distinguish between , Infosys, and the plethora of midsize computer names here?
We have always advocated having a weighting for this space, having an absolute barbell type allocation. In IT actions, there are differences in quality and focus. With Infosys, there was initially a slight positive surprise but the market didn’t seem to like it initially. But it’s now recovered and obviously with the rupee weakening so much, very short term market concentration moving back to more growth names, the IT stable as such has obviously found a ongoing purchase support.

But the big signal we are watching is of course the Fed meeting which is imminent now. Much of the street expects a rate hike of 75 basis points. Do you agree with that, or do you expect a more dovish tone in the face of US recession fears?
We don’t have a better idea than anyone else of what the Fed will do or when it will raise rates. Obviously, looking at the stock market reaction in particular, this suggests that the Fed has done a lot of its homework and I don’t think that will be viewed positively by US authorities.

So if the market keeps screaming, there’s every chance the rate hike will be as big as expected and I don’t think we’d see a slowdown in the pace either.

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When we look at bank names or market weighting, how do you view some of the heavy hitters? Would you continue to allocate money to financials or would you prefer sectors that are trying to make a comeback like metals?
Yes, it’s tricky. Getting that cyclical exposure is critical right now, as is getting that balance right from a foreign investor’s perspective. In a market like India, financial services is such a huge sector and especially large private banks are very good ways to play India. We get a lot of different parts of the economy when you buy and and especially the private banks. Thus, we maintain that having exposure to some of the higher quality private banks is a very good long-term bet. There are periods of short-term underperformance, but this is a good way to get decent broad-based Indian exposure. We always like banks here and will probably focus more on private sector ones than public sector ones.

I also think that in the current state of the market, it is better to focus on large caps rather than smaller caps.

With respect to and a lot of these new listings, we are seeing that developer ownership is quite low and a lot of that foreclosure is happening with respect to investors who have invested in the early stage and due to the regulations, they can only sell one year after the list that is today for Zomato. Does this continue to be one of the big risks on this e-commerce or e-tech list that’s been happening for a year?
I think you are right. There is always an overhang for equity investors to deal with when it comes to companies where there are even more sales to come. The problem with India is that there are a lot of these companies that want to be listed and in fact quite a few are listed now. So there is a lot of choice and as we all know the industry is changing very fast and there is also a lot of fierce competition. There are some big companies out there, but one has to be aware of what’s going on with the developers as well as the underlying industry structure. It is an interesting space but requires a lot of work.

How do you segregate within the auto pack? It’s made a significant comeback and it’s not just a two-wheeler or passenger car market story anymore. The agricultural equipment majors are in the lead and Mahindra & Mahindra is an example of this. Where do you have a bullish and bearish bias?
In the automotive space and the agricultural equipment space, with what’s happening in the agricultural sector globally, that would naturally lend itself to supporting Mahindra & Mahindra because it’s a big sector of agricultural type. Elsewhere, it remains to be seen what will happen with supply chain issues for automakers in general as well as the underlying demand situation.

So we still see a bit of pressure in the automotive sector and I think that’s probably trickled down to India in the short term. Obviously, automobiles are big expenses and with rising inflation and everything else, they’re still under pressure as a business as a whole from a consumer discretionary spending perspective.

So yes we will remain cautious on space, there are a number of issues with demand and obviously supply chain issues as well. If one wants to play in this space, then something with more agricultural exposure might make sense.

What about capital goods, India’s long-term infra story?
We are definitely interested. India has a massive deficit in many infrastructure expenditures in certain sectors and this is going to last for many years. L&T is a beneficiary and also has its operations in the Middle East and some exposure to hydrocarbons as well as defence. So we continue to love L&T. The stock performed well and it is a good way to play to a lesser extent the recovery of infrastructure spending in India and the Middle East.

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