Jefferies India has added Coal India, Honasa Consumer, Eicher Motors, NTPC, HDFC Bank and ICICI Prudential Life and reduced positions in Marico, Maruti Suzuki India, PowerGrid India, and NBFC, according to a recent note from the global brokerage.
It noted that concerns about higher US yields, rising oil prices, and near-term state election outcomes have subsided. They anticipate a market rebound after the December 3 announcement if election results align positively. The brokerage maintains strong confidence in the capex cycle theme, with specific focus on housing, power, and other industrial sectors.
"We had raised cash tactically in our model portfolio in early September, which we are now deploying as key macro concerns of higher US yields, rising oil prices and near-term state election results have subsided," said the note.
The US 10-year yields dropped 60 basis points from the recent peak. Despite turmoil in the Middle East, oil prices have remained stable, creating an opportunity for retail petrol prices to cool off. Opinion polls and feedback hint that BJP's performance in the upcoming state elections might surpass the initial expectations, potentially winning Rajasthan and gaining better vote shares in other states.
The Nifty's strong earnings pushed it to a one-year forward ratio of 18.8x, surpassing the 10-year average. Compared to Emerging Markets (excluding China), India's 63 percent premium aligns with historical averages. Additionally, Indian markets seem reasonable on a PEG basis. Barring significant external shocks, current market multiples could hold steady due to robust domestic flows, Jefferies India added.
Model portfolio changes
Jefferies predicts faster growth for Indian two-wheeler demand compared to passenger vehicles over the next two years. They suggest swapping Maruti with Eicher. Eicher's stock lagged behind Nifty Auto Index due to competitive worries, but Jefferies sees limited impact from Harley and Triumph launches on Eicher and expects a possible re-rating as confidence in long-term market share sustainability grows. Meanwhile, Maruti faces demand-side pressures.
Jefferies swapped PowerGrid with NTPC for India's power narrative. NTPC boasts of a 10 percent EPS growth average, surpassing PGRD's 6 percent. Its earnings surge stems from renewable and conventional energy expansion, potentially leading to a stock re-rating due to its focus on ESG criteria.
It also swapped Marico with Honasa. Marico improved margins but faces weak volume growth, especially in rural areas. Conversely, Honasa Consumer shows robust growth, achieving over 30% revenue growth and consistent margin expansion. It serves a premium consumer base less affected by inflation and demand downturns, it added.
Jefferies added Coal India Coal India's volume growth has surged due to India's robust economic growth and increasing power consumption. This, coupled with lower-than-expected costs, has notably enhanced its earnings outlook. With an appealing 6.6x FY25 PE ratio and a 7-8 percent dividend yield, the stock appears attractive, it said.
Jefferies India reallocates focus from NBFCs to HDFC Bank and ICICI Prudential Life. They decreased NBFC weight due to expectations of a delayed rate cut cycle, influenced by recent RBI actions raising risk weight on NBFC loans. Consequently, they reduced the weight on Bajaj Finance and Chola. HDFC Bank's status was upgraded to neutral, and ICICI Prudential Life was added due to more appealing valuations compared to peers.
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