Jefferies flags valuation risks, adds TVS Motor, Home First Finance, Manappuram to India portfolio

Jefferies will hike the weight of PolicyBazaar and Bharti Airtel in its India long-only portfolio.

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26 Aug, 2025 12:21

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Domestic equities have rallied since the lows recorded in April, leading Jefferies’ Global Head of Equity Strategy Chris Wood to note that valuations, once again, have become a concern.

“The rally in the market means that valuations have become an issue again, most particularly in the mid-cap space,” said the Jefferies strategist in his latest Greed & Fear note. He pointed to the benchmark index Nifty 50’s valuation of 22.2x 12-month forward earnings, which came after a roaring 14 percent rally over the past three months.

In the midcap space, the key index Nifty Midcap 100 is commanding a valuation of 27.1x 12-month forward earnings, after jumping nearly 24 percent from its lows in April.

Elevated valuations, combined with investor optimism, have resulted in large corporations and promoters offloading large chunks of their stakes to sit on a tidy pile of gains. In May and June so far, around $13.2 billion has been raised through stake sales. According to Wood, the large equity supply is among the key risks to the markets.

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The Jefferies strategist decided to alter the brokerage’s long-only India portfolio. The portfolio will exit its positions in Larsen & Toubro, Thermax, and Godrej Properties, which will be replaced by TVS Motor, Home First Finance and Manappuram Finance, with a weight of four percentage points each. Further, it will hike the weight of PolicyBazaar and Bharti Airtel by one percentage point each.

Further, the note added that since the Union Budget 2025, the tax relief announced, has caused a sectoral rotation, with investors focusing on the consumption theme, instead of investment, helped by the monetary easing context with consumer finance stocks rallying sharply. Wood pointed to the 35 percent rally in Bajaj Finance shares so far in 2025.

Private capital expenditure seems to have fizzled out, but unlike Dalal Street, Jefferies ‘has not given up’ on a private capex cycle. “But such an investment cycle is likely to be more drawn-out and prolonged than the boom-bust cycle experienced in FY03-17, which resulted in an excess of power capacity.”

The global brokerage also remained bullish on India’s property market, believing that the domestic property market, now in its fifth year of an upturn, has further legs to run. “A lower mortgage rate, now at 8 percent and expected to fall to 7.5 percent when the latest RBI rate cuts are passed on, should help boost sales in the affordable and mid-income segments.”

Jefferies has a 19 percent weighting in property developers in the India long-only portfolio. The BSE Realty has jumped a staggering 35 percent since the low recorded on April 7, 2025.

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