3700% Dividends YTD: Jefferies' Rejigs India Portfolio; Adds High Dividend Stocks Eicher, Coal India, NTPC

American leading financial services provider, Jefferies has rejigged its model portfolio in the Indian market. Interestingly, the brokerage added high dividend-paying stocks like Coal India, Eicher Motors and NTPC while exiting shares like Maruti, and Power Grid.

Also, Jefferies has trimmed its weightage in NBFCs and instead picked more weightage in the largest private sector lender HDFC Bank, and ICICI Prudential Life Insurance. Moreover, newly listed Mamaearth owner Honasa Consumer has perked Jefferies' interest.

In its research note, Jefferies said, "We had raised cash tactically in our model portfolio in early Sep, which we are now deploying as the key macro concerns of higher US yields, rising oil prices and near-term state election results have subsided. Our conviction on capex cycle theme continues unabated with a specific focus on housing, power sector among other industrial sectors."

It added, "We add Coal India, Honasa, Eicher, NTPC, HDFC Bank & IPRU Life at the cost of cash, Marico, Maruti,
PGRD, NBFC."

Here's what Jefferies highlighted about the new additions:

1. Maruti Suzuki shares replaced with Eicher Motors shares:

Jefferies expects the Indian 2W demand to grow at a faster pace than PVs over the next 2 years. It added, "Eicher stock has lagged Nifty Auto Index CYTD on competitive concerns, but we see limited impact on EIM from Harley and Triumph launches and see the potential for re-rating as confidence on long-term market share sustainability rises. Maruti, on the other hand, is witnessing some demand-side pressures."

So far in FY23, Eicher paid a dividend of up to a whopping 3700% aggregating to Rs 37 per share to shareholders.

2. Power Grid shares replaced with NTPC:

Both are attractive plays on the India power story but NTPC offers a higher EPS growth of 10% CAGR over 6% for PGRD. NTPC's earnings growth will be driven by renewable energy (RE) and conventional capacity ramp-up and help stock re-rate on the ESG front.

In 2023 so far, NTPC cumulatively delivered dividends up 95% amounting to Rs 9.5 per share.

3. Marico Shares Replaced With Honasa:

Marico has delivered well on margin expansion in the last few quarters, although volume growth remains weak, with rural still under pressure. Honasa Consumer, on the other hand, is on a strong growth trajectory, delivering 30%+ revenue growth with steady margin expansion. It also caters to a much premium consumer, relatively unimpacted by inflation and demand slowdown, it added.

4. Added Coal India shares:

COAL's volume growth trajectory has improved amid India's strong economic growth outlook and rising power consumption, which, along with a lower-than-expected cost trajectory, has significantly improved its earnings outlook. Its 6.6x FY25E PE is attractive and the stock offers 7-8% dividend yield.

This largest government-backed coal producer is a high dividend yield stock in the PSU basket. Year-to-date, the company delivered up to 245% dividends -- amounting to Rs 24.5 per share.

5. Shifted weight from NBFCs to HDFC Bank, ICICI Prudential:

Jefferies note said, "We reduce weight on NBFCs as the rate cut cycle seems to be at least 6 months away. The recent RBI action raising risk weight on NBFC loans / unsecured retail credit drives our weight reduction Bajaj Finance and Chola. We raise HDFC Bank to neutral and also add ICICI Pru Life where valuations appear attractive relative to others."

Broadly for the overall Indian market, Jefferies note said, "US 10-y yields have moved down by 60 bps since the recent peak. Despite the events in the Middle East, oil prices have behaved well and recent correction leaves room for the retail auto-fuel (petrol) prices to be lowered. Also, the opinion polls and on-the-ground feedback suggest that the BJP's performance in the upcoming state elections may be better than initial expectations (i.e. might win Rajasthan and vote share in other states better). If the latter is true, the market might see a bounce after the results announcement on the 3rd Dec."

Furthermore, Jefferies said, "With the robust earnings performance, Nifty is now 18.8x 1-year forward - higher than the past 10-year average, but relative to EM (excluding China) the premium at 63% is in line with the historical average."

Also, Jefferies believes that on a PEG basis, Indian markets appear reasonable. Notwithstanding any big external shock, the current market multiples can be sustained given the strong domestic flows.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.