Jefferies Lists Top Stock Bets In 'Not Cheap' India Market
Jefferies is now hunting for pockets of value in Nifty 100, with 55-66% stocks trading below historical valuations.
Even as the benchmark Nifty 50 has retreated from its peak this year, Indian markets are still not cheap, according to Jefferies.
“The Nifty is down 13% from 2022 peak and is now a 3% discount to five-year average but still 8% premium to 10-year average,” the research house said in a March 8 note. The gauge is trading at 18 times its price-to-equity.
The Nifty’s yield gap—10-year bond yields less earnings yield—has remained 35 basis points above its long-term average, the note, co-authored by equity analysts Mahesh Nandurkar and Abhinav Sinha, stated. “On a peer relative basis, the market continues to trade 15% premium versus historical, despite recent underperformance.”
Also, a sharp jump in crude oil prices comes on top of an already accelerating imports for India, Jefferies said. “This will drive a jump in current account deficit and FY23 deficit will reach a 10-year high of 2.8%, based on oil prices averaging at $90 a barrel. This will lead to a negative balance of payment and rupee has already hit an all-time low.”
On the fiscal front too, rising crude is likely to drive some cuts in fuel excise duties wherein a 15% price hike is needed to pass on the full costs, it said.
Stock Bets
Jefferies is now “hunting for pockets of value in the Nifty 100 stocks”, with 55-66% stocks trading below historical valuations.
“The largest discount versus five-year or lesser premiums are found in non-lending financials with HDFC Life Insurance Co. and ICICI Prudential Life Insurance Co. being the preferred picks.”
It also prefers Bandhan Bank Ltd., IndusInd Bank Ltd., and HDFC Ltd. in lending financials, along with Maruti Suzuki India Ltd. and Godrej Consumer Products Ltd. among automakers and consumer staples, respectively, terming them “buckets with valuation discounts.”
Among stocks that have fallen below the pre-pandemic levels, Jefferies bets on segments such as lending and non-lending financials, oil PSUs (oil marketers and city gas distributors) and select autos. Within these, it prefers Axis Bank Ltd. and Indus Towers Ltd., apart from the above listed names.