After a 27 percent rally since the May lows, the Nifty index has slipped 4 percent in the last three days due to the increasing number of coronavirus cases and few countries imposing the second lockdown. The current negative stock market trend will continue further, and also gives investors a chance to buy stocks on a dip, said Jefferies.
The global brokerage firm believes that continued global liquidity and economic recovery trend is encouraging. " 1-yr forward Nifty P/E at 20x is steep but can be justified in the context of a lower risk-free rate. Our bond yield - Earnings yield indicator shows that valuations are reasonable," said the research note.
However, the key risk to this constructive view is uptick in government securities yield globally as well as in India.
Among stocks, Jefferies' top picks include HDFC, ICICI Prudential Life Insurance, Godrej Properties, Infosys, ITC, Maruti Suzuki, CONCOR and Bharat Forge.
Meanwhile, in the case of sectors, the global brokerage remained 'overweight' on real estate, industrials, IT services and consumer discretionary.
For realty space, the brokerage explained that it was in a seven-year downcycle. "The sector is in affordability at 20-year best levels. Also, the state government's action are visible on supporting the sector is visible, which is a positive trigger for the listed players," said the report.
Industrials space remains attractive due to strong bottom-up ideas like CONCOR and Bharat Forge. Government's 'Make in India' initiative and focus on housing and exports highlight the good opportunity.
In the case of IT services, the brokerage indicated that global/US demand recovery and robust spending expectations are key positives. "Valuation bias makes Infosys and HCL Technologies the top picks. Any potential weakness in the US economy is a risk to our call," the report added.
Jefferies further remained overweight on the auto sector given the urban recovery gathering momentum. However, it remained 'neutral' on the financial space due to the uncertainties on the asset quality and margin outlook.
It further gave out 'neutral' stance on pharma, energy and telecom sectors.
According to the brokerage report, it remained 'underweight' on consumer staples and utilities due to low value and government's disinvestment respectively.
