The Greed & Fear report by Christopher Wood of Jefferies has highlighted some key changes in their India approach. They have replaced Aditya Birla Real Estate with M&M in the India long-only equity portfolio. As per Wood, the 50% tariffs may not pose a direct threat to most listed companies, but “they are undoubtedly a potentially massive negative for SMEs in the employment-intensive sectors.”
According to Chris Wood, the longer the tariffs are maintained, the more the “potential to impact negatively the likes of micro-finance and consumer finance companies.”
Jefferies’ investment rationale: M&M replaces Aditya Birla Real Estate
In the periodic review of the India long-only equity portfolio, Aditya Birla Real Estate made way for M&M. While the former, since its inception in July 2021 as Century Textiles, has run up nearly 183%, delivering significant gains; they have now found an investment case for M&M.
M&M is one of Jefferies’ preferred Buys in the auto sector, as they believe that a “potential GST cut should provide a boost to auto demand, especially in two-wheelers and small passenger vehicles. According to Jefferies, “The GST rate rationalisation appears to be on track for the festive season, given an enthusiastic response from the state governments, and we see no significant legal or parliamentary procedure requirements to impede a smooth roll-out.”
Jefferies has a Buy on M&M with a price target of Rs 4,200 per share. This implies almost 5% upside from current levels for the Mahindra and Mahindra share price. According to them, “the competitive landscape in Indian autos has changed significantly in recent years. In PVs, M&M has risen to the number 2 spot in terms of market share, while Maruti Suzuki and Hyundai have slipped to multi-year lows.
Jefferies’ investment rationale: Top sector bets
According to Jefferies, “the longer the tariffs are in place, the more the negative consequences will show up.” This, they believe, is applicable for both the US and India. From a stock market perspective in India, they see “big companies in a sector are becoming ever more dominant as consolidation proceeds with the larger getting larger, be it autos, banks, cement, property or telecom.”
Specifically for banks, Jefferies pointed out, “The CASA ratios have bottomed and should rise as term deposits are low and liquidity levels have improved.” The report highlighted that the CASA ratio of the ten large banks under Jefferies coverage has declined to 37% in Q3FY25 from 45% in Q4FY22.
Moreover, “There has also been significant credit easing following the credit tightening implemented by the previous RBI Governor,” they added.
Jefferies on the big tariff overhang
Though there are murmurs about a possible rollback by November, Jefferies listed out the concerns if the 50% tariffs are maintained. According to them, “the GDP will be impacted by an estimated 1-1.2 percentage points with a similar cut in earnings forecast.”