On the other hand, the brokerage has trimmed its “overweight” stance on financials, thereby removing Shriram Finance from the model portfolio. India’s largest miner, Coal India Ltd., has also been removed from the Jefferies Model Portfolio.
In its note, Jefferies wrote that valuations of the Indian markets have become demanding yet again after recent rebound seen by the indices from their April lows. “The valuations are demanding, especially in the context of expectations of Earnings per Share (EPS) growing at a compounded annual growth rate (CAGR) between 11% and 12% between financial year 2025-2027,” the brokerage said.
Outlook for flows, both domestic and foreign, continues to remain positive and become conducive for potential equity supply, thereby capping the upside, according to the Jefferies.
Jefferies attributed the recent upmove in Indian equities partly to the RBI easing cycle, the US-China trade deal relief and de-escalation between India and Pakistan.
A potential trade deal between India and the US, will act as a key near-term trigger for Indian equities, Jefferies said.
“India’s position is still close to neutral to underweight for many funds and allocations are being raised,” the brokerage said. A recent report from BofA Securities said that India has become the most favoured market for fund managers in Asia, surpassing Japan.
Jefferies believes that the rise in equities could also result in a large supply of equities, as was evident through a better part of 2024. “Our base is that the same repeats now, else a valuation melt-up may be ahead,” the brokerage added.
The Nifty has risen 7% in the last one month and closed at a seven-month high on Thursday.
