It is a relatively subdued session with some buying in the post-lunch session. While the Sensex is close to its 52-week high, according to the investor feedback at Jefferies Asia Forum 2023 in Hong Kong, “FPI level of excitement on India is high, though valuations an issue.” According to their latest report, while there is high interest among the regional fund managers, there are “no significant overweight position on India.”
That said the brokerage house believes, “Valuations, and China stimulus, have triggered some quietening of FPI flows in recent weeks (net FPI flows $0.1bn over past 6 weeks). We also note a broad appreciation of the residential and govt / infra capex spending; though opinion on the private corporate capex upcycle is still forming. Investors continue to grapple with how to play the investment cycle in India.”
That said, Jefferies maintains a strong outlook for Cyclicals. According to them the broad capex cycle uptick was reflected in company commentary across cyclicals (property, Infra and building materials). “Property (Macrotech) is witnessing a goldilocks situation on both demand and supply of housing. Growth targets of 20% are achievable in the near and medium term. New launches continue to see high demand. Infra cos (Adani Enterprises, Adani Ports) are positive on the potential of double-digit volume growth in ports business while investments in renewable energy and development of airports and ports should drive growth going forward. Building materials (Havells) see strong industrial demand while they expect demand from housing to revive from H2FY24.”
Here is a quick look at some of Jefferies’ key bets in India –
Axis Bank: This is one of Jefferies top bets in the financial space with a Buy rating and Rs1,200 price target, based on 1.9x Jun-25 adjusted PB. According to their report, the Bank is trying to improve retail deposit franchise by adding branches (up 4% YoY), focusing on premiumisation of deposits through Burgundy platform and on private sector corporate savings deposit segment. Jefferies expects that “these initiatives can take 18-24 months to play out in terms of improved funding mix & lower cost of funds. The Bank’s management also believes that most private banks have avoided being aggressive with deposit rates to lift their deposit growth.
Havells: Jefferies has a Hold rating on the stock with a price target of Rs 1,420. According to the report, “While we acknowledge HAVL as a strong franchise, most positives appear priced in at the current PE of 69x/57x FY24/25e. The target PE is at 51x, in-line with 5-year average. The key risks include potential downside as a result of “demand slowdown, pricing pressures.” On the upside, they expect Lloyd margin revival, softening raw material prices and premium launches could support stock price.
HUL: For HUL, the brokerage highlighted that the company’s strategy remains unchanged under the new CEO – Growing the core, market development, and premiumisation. Jefferies further outlines that as “input inflation cools, competitive intensity has inched back to pre-inflation levels. Industry ad-spends are back to 2019 levels too. The management. focus is on driving volume growth through increased investments in growth vectors. Growth over the next few years will be topline-led, with modest margin expansion.”