Jefferies India has made adjustments to its portfolio, incorporating Coal India, Honasa Consumer, Eicher Motors, NTPC (National Thermal Power Corporation), HDFC Bank, and ICICI Prudential Life, while concurrently reducing positions in Marico, Maruti Suzuki India, PowerGrid India, and NBFCs (Non-Banking Financial Companies), as per a recent update by the brokerage house.
The global brokerage firm pointed out concerns around the increasing US yields, escalating oil prices, and the imminent outcomes of state elections. They predict a potential market upswing following the announcement on December 3, especially if the election results are favorable. The brokerage remains highly optimistic about the capex cycle theme, emphasizing housing, power, and various industrial sectors.The recent peak witnessed a decline of 60 basis points in US 10-year yields. Despite unrest in the Middle East, oil prices have stayed steady, presenting a chance for a reduction in retail petrol prices.
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Portfolio Changes
Jefferies has swapped Maruti Suzuki India Ltd for Eicher Motors in their portfolio, foreseeing a faster growth in the demand for Indian two-wheelers compared to passenger vehicles in the next two years. Despite Eicher Motors' stock trailing behind the Nifty Auto Index year-to-date due to competitive worries, Jefferies predicts limited impact from Harley and Triumph launches and anticipates a potential re-rating as confidence in long-term market share sustainability increases. Conversely, Jefferies notes that Maruti is facing demand-side pressures.
It has also replaced Power Grid Corporation with NTPC in its portfolio, citing both as appealing investments in the Indian power sector. NTPC, however, stands out with higher earnings per share growth of 10 per cent CAGR compared to Power Grid's 6 per cent. Jefferies anticipates NTPC's earnings growth to be propelled by renewable energy and conventional capacity ramp-up, potentially leading to a stock re-rating, especially in the context of environmental, social, and governance (ESG) considerations.
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In another shift, Marico has been exchanged for Honasa in the portfolio. While Marico has seen enhanced margins, it grapples with sluggish volume growth, particularly in rural regions. On the contrary, Honasa Consumer demonstrates strong growth, achieving a revenue increase of over 30 per cent with consistent margin expansion. Serving a premium consumer base less susceptible to inflation and demand downturns, it offers added resilience, according to the update.
Jefferies included Coal India in its portfolio, noting a significant boost in the company's volume growth attributed to India's strong economic expansion and rising power consumption. The combination of this growth and lower-than-anticipated costs has improved the outlook for its earnings.
Jefferies India has shifted its emphasis away from NBFCs towards HDFC Bank and ICICI Prudential Life. The reduction in NBFC exposure is prompted by anticipated delays in the rate cut cycle, influenced by recent RBI measures increasing risk weight on NBFC loans.
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