Jefferies adds Coal India, Honasa, Eicher Motors, HDFC Bank, IPru Life to its model portfolio
- Stock Market Today- Jefferies has added Coal India, Honasa Consumer, Eicher Motors, NTPC, HDFC Bank and IPru Life to its India model portfolio deploying cash and at the cost of Power Grid Corporation of India Ltd, Marico Industries, Maruti Suzuki India Ltd and NBFCs (Non Banking Financial Companies)
Jefferies has added Coal India, Honasa Consumer ltd, Eicher Motors Ltd, NTPC Ltd, HDFC Bank Ltd and ICICI Prudential Life Insurance Company Ltd to its India model portfolio deploying cash and at the cost of Power Grid Corporation of India Ltd, Marico Industries, Maruti Suzuki India Ltd and NBFCs (Non Banking Financial Companies).
In an Equity strategy note Equity analysts-Mahesh Nandukar, Abhinav Sinha, and Equity associate-Nishant Poddar a Jefferies India Pvt Ltd said that they had raised cash tactically in their model portfolio in early September, which they said are now deploying as the key macro concerns around higher US yields, rising oil prices and near-term state election results have subsided.
US 10-year yields have moved down by 60 bps since the recent peak. (100 bps make 1%). Also Despite the events in the Middle East, oil prices have behaved well and recent correction in oil prices leaves room for the retail auto-fuel (petrol) prices to be lowered, Further analysts at Jefferies India Pvt Ltd said that, the opinion polls and on-the-ground feedback suggest that the BJP's performance in the upcoming state elections may be better than initial expectations (i.e. might win Rajasthan and vote share in other states better). If the latter is true, the market might see a bounce after the results announcement on the 3rd of December.
Their conviction on capex cycle theme continues unabated with a specific focus on housing, power sector among other industrial sectors.
Making changes to their Model Portfolio-
Jefferies has replace Maruti Suzuki India Ltd with Eicher Motors as they expect the Indian two-wheeler demand to grow at a faster pace than passenger vehicles over the next two years. Eicher Motors stock has lagged Nifty Auto Index current year to date on competitive concerns, but Jefferies sees limited impact on Eicher Motors from Harley and Triumph launches and sees a potential for re-rating as confidence on long-term market share sustainability rises. Maruti, on the other hand, is witnessing some demand-side pressures, as per Jefferies.
Power Grid Corporation has been replaced with NTPC as both are attractive plays on the India power story but NTPC offers a higher earnings per share growth of 10% CAGR (Compound annual growth rate) of over 6% for Power Grid. NTPC’s earnings growth will be driven by renewable energy ( and conventional capacity ramp-up and help stock re-rate on the ESG front, feels Jefferies
Marico Industries has been replaced by Honasa consumer Ltd as Marico has delivered well on margin expansion in the last few quarters, although volume growth remains weak, with rural still under pressure. Honasa Consumer, on the other hand, is on a strong growth trajectory, delivering 30% plus revenue growth with steady margin expansion. It also caters to a much premium consumer, relatively un-impacted by inflation and demand slowdown, feels Jefferies.
Jefferies have added Coal India to their portfolio as volume growth trajectory has improved amid India's strong economic growth outlook and rising power consumption, which, along with lower-than-expected cost trajectory, has significantly improved its earnings outlook. Its valuation at 6.6 times FY25 estimated Price to earnings is attractive and the stock offers 7-8% dividend yield.
Jefferies have shifted weight from NBFCs to HDFC Bank & ICICI Prudential Life: They have reduced weight on NBFCs as the rate cut cycle seems to be at least 6 months away. As per Jefferies recent Reserve Bank of India action raising risk weight on NBFC loans, unsecured retail credit drives our weight reduction Bajaj Finance and Cholamandalam. They have raised HDFC Bank to neutral and also add ICICI Prudential Life where valuations appear attractive relative to others.
Relative valuations ex-China reasonable
With the robust earnings performance, Nifty is now trading at18.8 times 1-year forward - higher than the past 10-year average, but relative to emerging market (excluding China) the premium at 63% is in line with the historical average. Also, on Price/Earnings-to-growth basis, Indian markets appear reasonable, says Jefferies. Notwithstanding any big external shock, the current market multiples can sustain given the strong domestic flows.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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