L&T, RIL, AU Small Finance Bank: Chris Wood rejigs India equity portfolio

This, he wrote in his weekly note, GREED & fear, will be paid for by reducing the existing investments in Bajaj Finance, Oil & Natural Gas Corporation (ONGC), and Reliance Industries (RIL)

Christopher Wood, global head of equity strategy at Jefferies has rejigged his India long-only portfolio, and increased the investments in JSW Energy, AU Small Finance Bank and Larsen & Toubro (L&T) by one percentage point each.

This, he wrote in his weekly note to investors, GREED & fear, will be paid for by reducing the existing investments in Bajaj Finance, Oil & Natural Gas Corporation (ONGC), and Reliance Industries (RIL) by one percentage point each.

In his Asia ex-Japan and India long-only portfolio, too, Wood has replaced Bajaj Finance with a 4 per cent allocation to JSW Energy. The investment in food delivery company Zomato has also been hiked by one percentage point (ppt). CHECK WOOD'S PORTFOLIO

 

That said, as a house, Jefferies has now started to nibble at stocks as near-term concerns/headwinds have started abating.

"We had raised cash tactically in our model portfolio in early September, which we are now deploying as the key macro concerns of higher US yields, rising oil prices and near-term state election results (in India) have subsided. Our conviction on the capex cycle theme continues unabated with a specific focus on housing, power sector among other industrial sectors," wrote Mahesh Nandurkar, managing director (MD) at Jefferies, in a co-authored note with Abhinav Sinha and Nishant Poddar.

Among stocks, Jefferies has added Coal India, Honasa Consumer, Eicher, NTPC, HDFC Bank and ICICI Prudential Life at the cost of cash, Marico, Maruti, Power Grid, and non-bank finance companies (NBFCs) in its model portfolio, the Jefferies' note suggests.

Reasonable valuations

Market valuations, brokerages feel, have become reasonable after the fall from peak levels. From its 52-week high level of 67927.23 hit on September 15, the S&P BSE Sensex had dipped to 63,100 levels by October 26 before recovering some lost ground.

On their part, foreign portfolio investors (FPIs) exited Indian shores amid rising US bond yields, flaring crude oil prices amid 'higher for longer' narrative of the central banks as regards interest rates. Their aggregate holdings stood at Rs 54.5 trillion, implying 16.6 per cent holding of overall Indian equities as of November 23, which is the lowest since 2012, suggests a note by ICICI Securities.

"This decadal-low FPI equity holdings of Indian equities are ironic given that Indian fundamentals are approaching their historical best, including favourable cycles in terms of corporate profits, investment rate and tax buoyancy," wrote Vinod Karki and Niraj Karnani of ICICI Securities in a recent note.

The market correction, analysts feel, has skimmed away the excessive valuation froth, making them ripe for cherry picking from a medium-to-long term perspective. They do, however, caution against the intermittent corrections.

"Odds are evenly balanced as headwinds emanating from firm US interest rates, El Nino impact on crops and inflation, volatile crude and geopolitical uncertainty still abound. Nifty50 is not in a bubble zone as it is trading at 17.2 per cent discount to 10-year average which provides comfort," said Amnish Aggarwal, head of research at Prabhudas Lilladher.

With the robust earnings performance, said analysts at Jefferies, Nifty is now trading at 18.8x 1-year forward earnings - higher than the past 10-year average. However, relative to emerging markets (excluding China), the premium at 63 per cent is in line with the historical average.

"Also, on a PEG basis, Indian markets appear reasonable. Notwithstanding any big external shock, the current market multiples can sustain given the strong domestic flows," Nandurkar said.