Jefferies, a global brokerage firm, has recently made significant adjustments to its model portfolio, responding to the ever-changing market dynamics and macroeconomic factors. The portfolio reshuffle involved both the sale and purchase of stocks, resulting in the removal of Maruti, Power Grid, and Marico, and their replacements with Eicher, NTPC, and Honasa Consumer.
In line with their tactical approach, Jefferies increased the cash allocation in their model portfolio in early September. This strategic move was driven by the subsiding of key macro concerns, including higher US yields, rising oil prices, and near-term state election results. With these concerns on the decline, Jefferies saw an opportunity for optimal redeployment.
The reshuffle involved the sale of three stocks and the addition of six new stocks to the model portfolio. Maruti Suzuki was replaced by Eicher Motors, with Jefferies predicting faster growth in the two-wheeler segment compared to passenger vehicles in the next two years. Eicher Motors is expected to have significant potential for re-rating, making it an attractive addition to the portfolio.
Power Grid Corporation was substituted with NTPC, as both companies offer attractive prospects within India’s power sector. NTPC, in particular, presents higher earnings per share growth and the potential for re-rating in the Environmental, Social, and Governance (ESG) domain.
Marico Industries made way for Honasa Consumer Ltd, the parent company of Mamaearth. While Marico has shown margin expansion, its volume growth has remained weak. On the other hand, Honasa Consumer has demonstrated strong growth with over 30% revenue growth and steady margin expansion, making it a compelling choice for the model portfolio.
Additionally, Coal India was included in the portfolio with a weightage of three percentage points due to improved volume growth, attractive valuation, and a steady 7-8% dividend yield. HDFC Bank Ltd was added as a shift away from Non-Banking Financial Companies (NBFCs), in anticipation of a potential six-month delay in the rate cut cycle. Finally, ICICI Prudential Life Insurance Company Ltd was included due to its attractive valuations relative to others in the sector.
Overall, Jefferies’ model portfolio adjustments showcase their dedication to understanding evolving market dynamics and their ability to strategically realign their investments for potential growth opportunities.
Frequently Asked Questions (FAQ)
1. How did Jefferies decide which stocks to add and remove from their model portfolio?
Jefferies made these decisions based on their analysis of evolving market dynamics, macroeconomic factors, and potential growth opportunities in specific sectors. They considered factors such as anticipated growth, valuation, margin expansion, and dividend yield.
2. Why did Jefferies increase cash allocation in their model portfolio?
Jefferies increased cash allocation based on the subsiding of key macro concerns like higher US yields, rising oil prices, and near-term state election results. This tactical move allowed them to optimize their portfolio by reallocating funds to potentially lucrative investment opportunities.
3. What were the reasons behind replacing Maruti, Power Grid, and Marico with Eicher, NTPC, and Honasa Consumer?
Maruti was replaced by Eicher due to the anticipation of faster growth in the two-wheeler segment. Power Grid was substituted with NTPC as both companies are deemed attractive plays on India’s power story. Marico Industries was replaced by Honasa Consumer due to the latter’s strong growth trajectory and steady margin expansion.
4. Why was Coal India included in the portfolio?
Coal India was added to the portfolio due to its improved volume growth trajectory, attractive valuation, and a steady dividend yield of 7-8%.
5. What was the rationale behind adding HDFC Bank and ICICI Prudential Life Insurance to the model portfolio?
HDFC Bank was added to the portfolio as a shift away from Non-Banking Financial Companies (NBFCs) in anticipation of a potential delay in the rate cut cycle. ICICI Prudential Life Insurance was included due to its attractive valuations relative to others in the sector.