Financials, consumer staples, industrials, utilities and real estate are what Jefferies is overweight on, according to the brokerage report released on June 6. It is underweight on IT, energy, telecom and consumer discretionary.
In financials, which has the highest weightage in the portfolio with 39.8 points, the top picks are ICICI Bank, Axis Bank, IndusInd Bank, HDFC Life, Bajaj Finance and Cholamandalam Finance.
Also read: Is the good run of the Indian banking sector over?
ICICI Bank is among the top picks in financials for the brokerage because it believes that the bank can sustain superior growth, improved asset quality and higher ROEs. “ICICI Bank looks well poised to leverage on growth pickup in Indian bank credit led by deeper penetration and higher market share in urban micro-markets in metro and near metro areas,” the report stated.
“Strong digital capabilities have enabled the bank to ramp up unsecured lending business for retail loans as well as SME lending business. This, in turn, has improved NIMs (net interest margin) without raising asset quality risks,” it added.
Axis Bank was recently upgraded among the brokerage’s top picks because analysts believe that the “franchise is getting stronger and is on track to deliver higher growth and RoEs sustainably”.
They are happy with the way the bank’s integration with Citibank’s India retail platform has been progressing with limited attrition among staff and customers, among other things.
“Impressive ramp up of digital platforms and tools at the customer-facing level as well as back-end will enable in liability mobilization. Mobile banking app of Axis is among the top-ranked apps in the world,” the report added.
The bank has also improved its core deposit franchise over the past year, stated the analysts. It has done this by focusing on stickier deposits; the share of retail within savings deposits has improved by approximately 900bps YoY to 55 percent, noted the analysts.
In consumer staples, which has the second highest weightage on the brokerage’s model portfolio with 12.8 points, the top picks are Godrej Consumer Products and Zomato.
The brokerage believes that Godrej Consumer Products is in the midst of a turnaround under the new management team led by Sudhir Sitapati. The focus now, they believe, is on stronger growth led by category development and business simplification.
“GCPL has taken several structural initiatives such as a renewed focus on access packs (without worrying about potential cannibalization), inventory correction in Indonesia, a ramp-up in market development efforts, distribution expansion and building a strong performance culture, with rewards linked to input metrics rather than output metrics. More steps are underway, and we see this course correction as a journey, which would span across several quarters,” they elaborated.
On the company’s recent acquisition of Raymond’s FMCG business, which the market seemed to not have received well, the analysts pointed out the management’s confidence in the acquisition delivering value.
Their optimism on Zomato is driven partly by the underpenetrated food-services industry — still at 10 percent of the food and grocery segment versus 50-60 percent in the developed world. Also, the duopoly structure of the market with the competitor Swiggy now showing an interest in reducing losses means improved profitability for the businesses, according to the analysts.
On Blinkit, they wrote, “We see a path to profitability on the back of expanding take rates (better mix, ad income & higher delivery fee) and declining costs (op leverage with higher dark store throughput)”.
The largest differential in weightage is in real estate; with zero in the neutral weight portfolio and 3.8 in Jefferies’ Model Portfolio.
In real estate, their top picks are Macrotech and Godrej Properties. On Macrotech, the analysts wrote, “We see near-term triggers in the completion of several large infrastructure projects near its land bank, which can drive a rerating of its land values.”
Their sentiment in Godrej Properties is driven by the company’s diversified presence across four large Tier-I cities, its early bird buys of land parcels that gave it a significant price advantage and its under-levered (around 0.4x gearing) balance sheet, among other things.
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