Jefferies favours Indian largecap stocks amid rising bond yields

Mumbai: Foreign brokerage Jefferies has recommended increasing exposure to Indian large-cap stocks, saying their relative valuations have become more attractive as rising bond yields put pressure on equities. The brokerage has added Kotak Mahindra Bank to its model portfolio, raised its weight on Reliance Industries and added Welspun Corp, while trimming exposure to rate-sensitive sectors.

"Risk-reward is becoming more favourable for largecaps on better relative valuations versus midcaps," analysts led by Mahesh Nandurkar said in a note, pointing to a narrowing earnings-growth gap between the two segments.

The MSCI India index has fallen about 10% from its August peak and underperformed emerging-market peers by 14 percentage points. That brings its one-year forward price-to-earnings multiple to 18.4 times, about 7% below its 10-year average, Jefferies said.


The brokerage said rising global bond yields were increasing pressure on equity valuations, but largecaps offered a relatively better risk-reward given their valuation advantage over midcaps and the narrowing earnings-growth gap.

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Jefferies has assigned Reliance Industries a higher weight in the model portfolio, citing attractive valuations and potential earnings upgrades from stronger refining margins. The stock trades at 8.4 times one-year forward EV/Ebitda (enterprise value/earnings before interest, tax, depreciation, amortisation), about 23% below its 10-year average, it said.

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Kotak Mahindra Bank has been added to the model portfolio following the removal of the leadership overhang and the potential for growth acceleration. The stock trades at 1.8 times FY27 price-to-adjusted book value, about 50% below its 10-year average, according to Jefferies.

The brokerage has reduced exposure to rate-sensitive segments, including NBFCs, real estate and consumer discretionary stocks, as higher yields could put further pressure on valuations in these areas.