Kotak Institutional Equities has shuffled its largecap and midcap portfolios, with Bank of Baroda, ABB India and Devyani International being left out and Canara Bank and Adani Ports & SEZ making their way in.
The brokerage firm said it removed Bank of Baroda, which had a weight of 160 basis points, from its largecap portfolio due to its strong performance over the past six and twelve months, where it advanced 27 percent and 73 percent respectively.
In place of Bank of Baroda, Canara Bank has included with a weight of 150 basis points. Previously, Canara Bank was part of its midcap portfolio.
One basis point isone-hundredth of a percentage point.
"The portfolio has a decent exposure to PSU banks through SBI and Canara Bank. SBI trades at 1.1X FY2024E BV adjusted for the value of its holdings in its associates and subsidiaries. Canara Bank trades at 0.9X FY2024E BV. There is not much to choose between the larger PSU banks (excluding SBI) currently, given similar return profiles and valuations,” Kotak said in its report.
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The brokerage firm also removed ABB India, which had 200 bps weight, from its largecap portfolio as it felt the stock had extremely rich valuations. It added Adani Port SEZ with a weight of 150 bps.
"We continue to like ABB’s fundamentals and have a positive view on the investment cycle. ABB’s valuations are factoring in strong revenue growth and margins for an extended period. The stock has run up 33 percent in the past three months", Kotak report said.
Kotak said Adani Port’s stock trades at 12.3X FY2024E EBITDA and 10.2X FY2025E EBITDA. The stock trades well below its fundamental value (its 12-month Fair Value of Rs 810) and has fallen 10 percent since January 24, 2023, the day before the release of a short-seller report on Adani Group.
“We remove Devyani International from the mid-cap model portfolio, given the stock’s 21 percent return in the past one month, which has pushed the stock price well above our 12-month Fair Value of Rs 160, It said of the KFC and Pizza Hut franchise.
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