Jefferies will now hold only one private Indian bank, Kotak Mahindra Bank Ltd, while adding local drugmaker Cipla to its portfolio list
Jefferies has also removed ICICI Bank from its portfolio list on concern the world’s biggest lockdown may trigger a negative credit cycle for the nation
Jefferies LLC has removed India’s most valued lender HDFC Bank Ltd. along with ICICI Bank Ltd. from its Asia ex-Japan long-only portfolio on concern the world’s biggest lockdown may trigger a negative credit cycle for the nation.
“This continuing lockdown is, unfortunately, making it ever more inevitable that India will suffer" a negative consumer lending cycle, Chris Wood, head of equity strategy, wrote in his “Greed & Fear" note to clients. “There is also a growing risk of increased forbearance on local lenders, as there is for lenders everywhere."
Jefferies will now hold only one private Indian bank, Kotak Mahindra Bank Ltd., while adding local drugmaker Cipla Ltd. to its list.
HDFC Bank had been in the Jefferies portfolio since June 2011 and has risen 282% in the period, the note said. The lender has declined 27% this year amid a widespread selloff that has pushed a gauge of banking stocks to slump 39%. Jefferies pick, Kotak Mahindra, plans to raise about $1 billion with a new share issue in a move that will strengthen its capital buffers and reduce the stake held by its founder.
The exclusion of the two banks will reduce Jefferies weighting for private Indian banks in its fund from eight percentage points to three, the note said. The group has also removed HDFC Life Insurance from the portfolio, cutting its exposure to the nation’s non-bank financial stocks.
By adding Cipla, Jefferies is buying into a “manufacturer of Greed & Fear’s favored hydroxychloroquine" among other drugs, Wood said. The shares have jumped more than 25% so far this year. Jefferies also added a one percentage point weighting to Reliance Industries Ltd. in its fund after Facebook Inc. said it will said it will buy about 10% of the Indian conglomerates digital assets.
“In countries such as India, with young demographics, such a lockdown causes more human suffering than Covid-19 itself," the note said.