Zomato out of Jefferies’ India portfolio; RIL, 2 other stocks get more weight

The brokerage has removed Zomato and Bharti Airtel and has added two Indian metal stocks Tata Steel and Hindalco to its India model portfolio, bringing the materials sector weight to Neutral from currently Nil as it believes that the China reopening and US rate peak can drive extended positive sentiments on metals.

The funding of the same is partly done by removing cash in the portfolio and exiting Zomato. For the latter tactical move, analysts at Jefferies are incrementally wary of a potential rise in competitive activity in the sector as its chief competitor, Swiggy, has recently seen market share loss. It has also shaved off some weight from Maruti (potential headwind to discretionary consumption due to slower wage hikes / IT hiring) to banks.

“We remove Bharti Airtel from our model portfolio as our analyst highlights concerns on rising 5G capex, likely not compensated near-term by tariff hikes. The pickup in the broader capex cycle, including housing, is a positive for L&T, which continues to post double-digit order growth, and we add weight to the stock, driving our Industrials sector positioning to Overweight,” the note stated.

The global brokerage has also added weight on RIL as the core O2C business profitability could improve on China reopening (petchem margins at 12-year lows on weak China).

“China’s covid reopening now appears finally in progress as the govt pursues relaxation from COVID restrictions. Nonetheless, the Chinese stock markets have rallied by 34% from Oct’22 lows. China’s reopening should have a significant global impact in 2023, with commodities (metals, oil, etc) likely seeing stability /upward movement in demand,” it added.

Jefferies said its model portfolio has outperformed Nifty by 209 bps over Jan – October 2022. But since then, it has underperformed in the 4Q as it raised cash and performance of metals and auto reversed. 

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.