Stock Picks: Jefferies tweaks its model portfolio — Maruti, Marico replaced by Eicher, Honasa

Brokerage firm Jefferies has made changes to its model portfolio by deploying the cash that it had tactically increased in early September.

Maruti, Power Grid and Marico have been removed from the portfolio and replaced by Eicher, NTPC and Honasa Consumer, the parent company of Mamaearth.

Jefferies wrote in its note that it is deploying the cash as the near-term macro concerns are abating. The 10-year treasury yields in the US have declined by 60 basis points since the recent peak. The US markets have also rallied after its CPI print was better than expectations, prompting speculation that the US Federal Reserve may be done with its current rate hiking cycle.

The note also speaks about oil prices, which, according to Jefferies, have behaved well despite events in the middle east. Brent crude continues to trade around the $80 per barrel mark as all eyes are on the now-delayed OPEC+ meeting on November 30.

On-the-ground feedback to Jefferies also suggests that the performance of the Bharatiya Janata Party (BJP) in the ongoing state assembly polls may be better than the initial expectations.

"In case the BJP performs better than expectations, the market might see a bounce after the results announcement on December 3," the brokerage wrote in the note.

India's relative valuation premium to Emerging Markets, excluding China is currently at 63%, which is in-line with the historical average. Jefferies also believes that the current market multiple can sustain given the strong domestic flows. At current prices, the Nifty 50 is trading at a 12-month forward price-to-earnings multiple of 18.8 times.

Jefferies expects the Indian two-wheeler demand to grow at a faster pace compared to passenger vehicles over the next two years. Additionally, Eicher Motors has lagged the Nifty Auto index in 2023, gaining 19%, compared to the 35% surge seen by the Auto index.

Although Jefferies calls terms both these stocks as attractive plays on India's power story, NTPC offers a higher EPS growth Compounded Annual Growth Rate (CAGR) of 10%, compared to Power Grid's 6%.

Jefferies believes that Honasa, parent of Mamaearth caters to a much premium consumer, which is relatively un-impacted by inflation and the demand slowdown. Mamaearth shares are also up 84% from their post-listing lows and fundamentals are not the only reason behind the same. You can read more on that here.

Coal India has been added to the model portfolio by Jefferies with a weightage of three percentage points. The brokerage said that Coal India's volume growth trajectory has improved and the current valuation of 6.6 times financial year 2025 price-to-earnings, along with a 7% to 8% dividend yield is attractive. Coal India's shares are the fourth best performers on the Nifty 50 so far in 2023 with gains of 50%.

Jefferies has reduced its weightage on Non-bank lenders as the rate cut cycle appears to be at least six months away. It has raised HDFC Bank to neutral and also added ICICI Prudential to the portfolio where valuations are attractive compared to others.