In an Equity strategy note Equity analysts-Mahesh Nandukar, Abhinav Sinha, and Equity partner-Nishant Poddar a Jefferies India Pvt Ltd said they raised money tactically in their model portfolio in early September, which they said is now deploying as the key macro . concerns around higher US yields, rising oil prices and imminent state election results have eased.
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US 10-year yields have moved down 60 bps since the recent peak. (100 bps makes 1%). Also Despite the events in the Middle East, oil prices have behaved well and a recent correction in oil prices leaves room for the retail auto fuel (gasoline) prices to be lowered, Additional analysts at Jefferies India Pvt Ltd said that, the opinion polls and on-site feedback suggest that the performance of BJP in the next state elections might be better than initial expectations (ie might win Rajasthan and vote share in other states better). If the latter is true, the market could see a rebound after the announcement of results on December 3rd.
Their conviction on a capex cycle issue continues unabated with a specific focus on housing, a powerful sector among other industry sectors.
Making changes to their Model Portfolio–
Jefferies has replaced Maruti Suzuki India Ltd with Eicher Motors as they expect Indian two-wheeler demand to grow faster than passenger vehicles over the next two years. Eicher Motors shares have lagged the Nifty Auto Index so far this year on competitive concerns, but Jefferies sees limited impact on Eicher Motors from Harley and Triumph launches and sees room for re-rating as confidence in long-term market share sustainability rises. Maruti, on the other hand, is witnessing some demand-side pressures, according to Jefferies.
Power Grid Corporation was replaced with NTPC as both are attractive plays in the India power story but NTPC offers higher earnings per share growth of 10% CAGR (Compound annual growth rate) of over 6% for Power Grid. Jefferies believes that NTPC’s earnings growth will be driven by renewable energy (and conventional capacity) increases and will help the stock re-rate on the ESG front.
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Marico Industries has been replaced by Honasa Consumer Ltd, as Marico has delivered well on margin expansion in the last few quarters, although volume growth remains weak, with rural still under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 lot of high quality consumer, relatively unaffected by inflation and demand slowdown, feels Jefferies.
Jefferies added Coal India to its portfolio as volume growth trajectory improved amid India’s strong economic growth and rising electricity consumption, which, along with a lower-than-expected cost trajectory, significantly improved its earnings outlook. Its valuation at 6.6 times FY25 estimated Price to earnings is attractive and the stock offers a 7-8% dividend yield.
Jefferies shifted weight from NBFCs to HDFC Bank & ICICI Prudential Life: They reduced weight on NBFCs as the rate cut cycle seems to be at least 6 months away. In light of Jefferies Reserve Bank of India’s recent move to raise risk weight on NBFC loans, unsecured retail credit leads our weight reduction Bajaj Finance and Cholamandalam. They raised HDFC Bank to neutral and also add ICICI Prudential Life where valuations appear attractive relative to others.
Relative estimates ex-China reasonable
With the robust earnings yield, Nifty now trades at 18.8x 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 a Price/Earnings-to-growth basis, Indian markets seem reasonable, says Jefferies. Despite any major external shock, the current market multiples may continue due to the strong domestic flows.
Disclaimer: The opinions and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions
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Updated: 24 Nov 2023, 10:24 IST
(tagsTo Translate) Coal India