Shriram Finance And Crompton— Jefferies Sees Attractive Valuation For Entry; Prefers Metals Over IT

Jefferies has added Crompton Greaves Consumer Electricals Ltd. and Shriram Finance Ltd. to its 'model portfolio', citing attractive valuation and predictable growth.

The brokerage said Crompton Consumer stock has corrected by 25% in the last six months and now trades at 33 times its FY26 estimated earnings — which is at a discount to its historical nine-year average.

The post-merger integration with capital goods maker Butterfly is yielding synergies and the upcoming summer season could be a trigger, Jefferies said.

The brokerage also replaced Home First Finance Co. with Shriram Finance as among the top picks in the NBFC space on account of "good economics for used commercial vehicles and stable asset quality amidst declining interest rates supporting margins."

EPS downgrades have been limited in Shriram, compared to peers and valuations now seem attractive given the 19% annual compounded growth potential and 16-17% return-on-equity outlook over the next two years.

Jefferies' Strategy

Jefferies sees Indian equities poised for a near-term bounce, driven by favourable factors, and prefers banks, NBFCs, metals, autos, property and power companies. At the same time, it is underweight on information technology and pharma.

Nifty valuations are nearing long-term averages, while government spending is boosting economic growth. Additionally, regulatory easing by RBI and positive reforms newsflow are contributing to the optimistic outlook. Strong domestic flows and a potential reduction in FPI selling could drive good returns in the near term, the strategy note said.

IT

Jefferies has reduced weight on the IT sector due to concerns over the US economy slowdown — changing stance to 'underweight' from 'overweight'.

IT valuations have increased 20% above the 10-year average, with a PE ratio of 25 times versus 10% EPS growth. Additionally, the 4.2% decline in the US dollar index over the past month may reduce pressure on the rupee, eliminating a margin tailwind for IT companies, the brokerage said.

Metals

As IT loses sheen, Jefferies has turned to metals that can benefit from potential recovery in China and expected safeguard duties. The brokerage is shifting weight from IT to metals, specifically to Hindalco Industries Ltd. and Tata Steel Ltd.

Metal stocks have outperformed year-to-date, driven by hopes of a Chinese recovery, as evident from the country's manufacturing PMI exceeding 50 in February 2025, and positive data from the property sector. Further, the likelihood of safeguard duties being imposed on steel imports from China, given elevated import volumes and similar actions by Korea and Vietnam, could lead to EPS upgrades of around 20% for every 2% safeguard duty.

Steel stocks, such as Tata Steel, are trading at relatively higher valuations, and they may be sustained.

Pharma

The outlook on pharma is clouded given the potential US tariff action in April that could hit exports of generic drugs. Jefferies has cut the rating on the sector from 'overweight' to 'neutral' and reduced weight of Sun Pharmaceutical Industries Ltd.