Jefferies rejigs India model portfolio; Zomato, Bharti Airtel off menu

Jefferies has rejigged its exposure to Indian stocks with changes to its model portfolio, where the global research and broking house has exited Zomato and Bharti Airtel. As regards Zomato, analysts at Jefferies said that they remain incrementally wary of a potential rise in competitive activity in the sector as its chief competitor, Swiggy, has recently seen market share loss.

"We remove Bharti Airtel from our model portfolio as our analyst highlights concerns on rising 5G capex, likely not compensated near-term by tariff hikes. We also shave off some weight from Maruti (potential headwind to discretionary consumption due to slower wage hikes / IT hiring) to banks," wrote Mahesh Nandurkar, managing director, Jefferies in a recent coauthored note with Abhinav Sinha.

The change in stance with respect to Zomato is a complete reversal from nearly a month ago (November 13), when the stock was a high-conviction 'buy' for Jefferies with a price target of Rs 100.

"We tweak our food delivery gross order value (GOV) estimates by 1-2 per cent. We now value Food delivery at 42x FY26 EV/Ebitda and quick commerce (QC) at 3x FY26 sales to arrive at a price target of Rs 100 (unchanged). Current valuations are undemanding in the context of profitable growth. Zomato remains Buy with high-conviction," Vivek Maheshwari, Jithin John and Kunal Shah of Jefferies had written in the November 13 note.

Since then, the stock has tumbled around 14.5 per cent to Rs 62 levels now, as compared to the 0.7 per cent fall in the S&P BSE Sensex, data show.

Top bets

Reliance Industries and Tata Steel, on the other hand, are now among its preferred bets. The China reopening and US rate peak, Nandurkar and Sinha said, can drive extended positive sentiments on metals. As a result, they have added Tata Steel and Hindalco to their model portfolio for India, bringing the materials sector weight to Neutral from currently Nil.

"We also add weight on RIL as the core oil-to-chemicals (O2C) business profitability could improve on China reopening," the Jefferies note said.

Jefferies' model India portfolio, according to the note, has outperformed the Nifty50 index by 209 basis points (bps) in the first 10 months of 2022 (January - October), largely led by their stance on information technology and metal sectors (underweight); State Bank of India SBI (overweight); partially offset by overweight in property.

"But since then, it has underperformed in the December quarter as we raised cash and performance of metals and auto reversed. Overall in 2022 (CYTD), the model portfolio has outperformed the Nifty50 by 92 bps and 10.8 percentage points (ppts) since its inception in October 2020," Nandurkar and Sinha said.