Jefferies shuffled and redeployed cash in its model stock portfolio given the easing U.S. yields and stabilising oil prices amid growing expectations of a better-than-initially expected BJP performance in the state elections.
The brokerage added Coal India Ltd., Eicher Motors Ltd., Honasa Consumer Ltd., HDFC Bank Ltd., ICICI Prudential Life Insurance Co., and NTPC Ltd. to the portfolio.
Marico Ltd., Maruti Suzuki India Ltd., Power Grid Corp. of India, and non-banking financial companies were removed.
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; that is, it might win Rajasthan while vote share in other states would be better, Jefferies said in a Nov. 23 note.
"If the latter is true, the market might see a bounce after the results announcement," it said.
Model Portfolio Changes
Maruti Suzuki India Replaced With Eicher Motors
Jefferies expects 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 calendar-year-to-date on competitive concerns, but we see limited impact on Eicher Motors from Harley and Triumph launches, and see potential for re-rating, as confidence on long-term market share sustainability rises," the brokerage said.
Maruti Suzuki is witnessing some demand-side pressures, it said.
Powergrid Replaced With NTPC
Both the stocks are attractive players in the India power story, but NTPC offers a higher earning per share growth of 10% CAGR over 6% for Power Grid Corp. Of India Ltd.
"NTPC's earnings growth will be driven by renewable energy and conventional capacity ramp-up and help stock re-rate on the ESG front."
Marico Replaced With Honasa Consumer
Honasa Consumer is on a strong growth trajectory, delivering 30% plus revenue growth with steady margin expansion. "It also caters to a much premium consumer, relatively unimpacted by inflation and demand slowdown," Jefferies said.
Marico has delivered well on margin expansion in the last few quarters, but volume growth remains weak with rural segment still under pressure, the note said.
Coal India Added
Jefferies added Coal India 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 6.6 times the FY25E PE is attractive and the stock offers 7-8% dividend yield."
Weight Shifted From NBFCs
Jefferies reduced weight from non-banking financial companies as the rate cut cycle seems to be at least six months away. "The recent RBI action raising risk weights on NBFC loans and unsecured retail credit drives our weight reduction (from) Bajaj Finance Ltd. and Cholamandalam Investment and Finance Co.."
The brokerage raised HDFC Bank to 'neutral' and also added ICICI Prudential Life Insurance, which is seeing attractive valuations compared to others, it said.
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