Upbeat on India despite high valuations; see FIIs returning: Ashburton

The fund would also hold on to their investments in Capital First, said Schiessl. The fund has also increased its weightage to IT space because they believe Indian IT companies have shown better cash management skills, he added.

The company also likes Endurance Technologies which they think is a well-managed company. The fund is also upbeat on the garment space in India and expects it to create jobs for non-skilled people. They like KPR Mill from that space, which has been a recent addition in their portfolio.

They would also look at getting D-Mart when valuations become reasonable, said Schiessl.

Below is the transcript of Jonathan Schiessl's interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.

Anuj: You have stayed put and of course, added more in India through the year, finally getting rewarded. But, what is the outlook for Indian market as we start the next financial year? Do you get a sense that this recent outperformance that we have seen is going to continue?

A: Clearly, the markets have rallied quite strongly. Particularly when you are looking at it from dollar returns, India has been a massive outperformer because obviously we have seen strength in the rupee as well which has certainly aided foreign investors getting a domestic equity market return plus a rupee return.

So, the reality is over the last year and half, India had underperformed. We saw a lot of foreign money being pushed into other more commodity related emerging markets. They did incredibly well over that period and we are beginning to see a little bit of foreign attention shifting back to India again. I guess the only slight concern is people look at headline valuations and clearly we are pushing to the upper end of the range, but that is something we can talk through.

Sonia: I was going through your recent India Equities Opportunity Fund holdings and within that, it seems like you have increased weightage in the technology sector. You already owned stocks like Infosys and HCL Technologies, but now looks like the weightage has gone up a tad bit. Are you still optimistic despite the headwinds that we have seen in this space?

A: If we are honest, we decided to push up weighting after we saw Cognizant when an activist investor entered the register of Cognizant and then the company did respond with better cash management initiatives. Obviously that has now spread to the Indian IT sector within India itself. So, that was one of the reasons. We were looking for better cash management initiatives out of Indian IT stocks.

But also, the reality is if we are seeing this global improvement in macro data, then certainly, some of the businesses, the headwinds that Indian IT has been facing over the last few years, if not couple of quarters, certainly are pushing into more tailwinds. And I think the demand environment is improving, better cash management and thirdly, obviously from a valuation perspective, there was no doubt that some of the worries over the Trump policy, protectionism, etc. to our mind was priced into current share prices.

Anuj: You have a lot of exposure to non-banking finance companies (NBFC), the largest of them of course, HDFC. A lot of people argue about valuations here. We have seen huge price moves in most of these stocks. Even the other one that you hold, Capital First has been a big money spinner. But what is the story here for you? Why would you want to stay invested in a space like this which is on traditional valuation parameters a bit expensive?

A: You can argue HDFC in various ways, depends on what you want to look at in that particular counter from a valuation perspective. But from an opportunity perspective, there is no doubt that with more of the population getting pushed into the financial, or the real economy or formal economy, the push of this government into various housing initiatives is something which we see as just adding to the overall medium to longer term story falling on financial companies that are focused on mortgages and housing markets.

So, there is a great long-term or even medium-term structural story around the spaces where these businesses operate and to our mind, HDFC has been simply the most consistent performer over a long period of time and it has scaled to be able to grasp this opportunity. So, we are very comfortable to be holding that stock.

Obviously, more recently, they have started to realise some value in some of the other insurance ventures and stuff. So, for us, it is a core long-term holding with a phenomenal management company that has produced incredibly consistent returns.

The likes of Capital First, obviously a much more recent entrant and a somewhat more diverse play, clearly a lot of those stocks, we were adding actually to Capital First in the midst of the demonetisation sell-off and yes, looking back I wish we had been a bit more aggressive because the stock has clearly done very well since then.

Sonia: Returns are something that you have seen in a whole host of stocks that you have invested in. the other one being the latest initial public offering (IPO), not latest, but the one that came in the auto space, Endurance Technologies. Since you invested in that, the stock went from Rs 500, now sitting at almost Rs 800. I wanted to get a sense. Are you looking at any more of these midcap or smallcap stocks? Have you added anything in your portfolio where you see more upsides?

A: Endurance is an interesting one. We almost hoping that the stock might have come off a bit with the news from the Supreme Court  but there obviously Bajaj has come trough that fairly well. Clearly, there will be an impact on the likes of Endurance, but it is a unique stock from an Indian market perspective and very well managed. So, we are comfortable to continue holding that one. The only addition we have had in the portfolio more recently has been KPR Mills. Obviously it is a relatively small position for us.

We are still very much active and looking in the mid to smallcap space for new names and real times because I think there are so many interesting, well-managed companies that are currently in the mid and smallcap range which most of which foreign investors do not bother looking at and those are the names that we find particularly attractive.

Anuj: I am tempted to ask you. Did you look at Avenue Supermarts (D-Mart) as a story because we had a huge listing of course and are you looking at it right now?

A: Yes, we certainly looked at D-mart and we have been reviewing the retail sector for some time. We just have not pulled the trigger. Obviously, from our side, allocations when you get in an IPO that is that oversubscribed, it was always going to be tough. Clearly the stock has raced up to quite frankly, very eye-watering valuations. Sure, if it had suffered a significant sell-off, we would certainly be looking at it. I think it is a very robust business model and clearly a very successful business.

There are threats through e-commerce on the horizon for companies like that, but when you get such a driven management team with such a focus on what they are doing, and they are doing incredibly well, it is understandable why a business like that has done so well since listing. But just at the moment, from a valuation perspective, we are happy just to sit back for the time being.

Sonia: The other stock that you spoke about was KPR Mill. I was just going through the history of that stock. The last twelve months have been alright for the stock. It has been really choppy, but it still has seen good return gone from about Rs 400 to Rs 640 (currently trading at around Rs 623), so that has been a big upmove in KPR Mills. Is it still worth a lot more? Is there still value in spaces like this?

A: We try and not worry about the next six months or even 12 months. We genuinely take a 3-5 year if not longer view on ownership. When we see what this business is doing on the garmenting side, when we see the governance and the whole environmental, social and governance (ESG) mentality of the promoters, it is a stock that we are happy to be aligned with the owners of that business.

Interestingly enough, the whole textile space, garmenting is clearly a space of focus for the government. Obviously, this is an area which India, with the breakdown of Trans-Pacific Partnership (TPP) where India can take global market share from some of the other players globally, and clearly from an employment perspective, the garmenting and the whole textile space is an area which can suck up huge numbers of low-skilled employees.