Jefferies Brokerage Adjusts Top Picks in the NBFC Sector

In a strategic move, Jefferies has made notable changes to its model portfolio by substituting Home First Finance Co. with Shriram Finance, highlighting the latter’s robust potential in the non-banking financial company (NBFC) sector. The brokerage also included Crompton Greaves Consumer Electricals Ltd. in its line-up, citing attractive valuations and consistent growth prospects that have emerged in the current market landscape.

Crompton Greaves: A Fresh Opportunity

Crompton Greaves has experienced a 25% decline in stock value over the past six months. Currently, it trades at 33 times its FY26 projected earnings, a valuation that falls below its historical nine-year average. Jefferies believes that the post-merger synergies with Butterfly, a capital goods manufacturer, will enhance performance. The approaching summer season is anticipated to further stimulate demand, making Crompton an appealing choice for investors.

• Key Points on Crompton Greaves:
  • 25% stock correction in six months.
  • Currently valued at 33x FY26 earnings.
  • Positive post-merger dynamics with Butterfly.
  • Seasonal demand boost expected.

Shriram Finance: A New Leader in NBFCs

Jefferies has shifted its focus in the NBFC sector, recognizing Shriram Finance for its advantageous position amid decreasing interest rates, which are expected to bolster profit margins. The brokerage emphasized that, unlike its competitors, Shriram has experienced minimal earnings per share (EPS) downgrades, making its current valuations attractive. Jefferies projects a 19% annual compounded growth for Shriram Finance, alongside a 16-17% return on equity over the next two years.

• Advantages of Shriram Finance:
  • Strong performance in used commercial vehicles.
  • Stable asset quality.
  • Limited EPS downgrades compared to peers.

Broader Market Strategy

Jefferies believes that Indian equities are set for a potential rebound, attributing this optimism to several favorable factors. The firm has a favorable outlook for sectors such as banks, NBFCs, metals, automobiles, real estate, and energy companies. Meanwhile, it remains cautious on the information technology and pharmaceutical sectors.

• Market Insights:
  • Nifty valuations nearing long-term averages.
  • Government spending is expected to enhance economic growth.
  • Regulatory easing from the RBI is a positive sign.
  • Anticipated reduction in foreign institutional investor (FII) selling could yield solid returns.

Shift from IT to Metals

With growing concerns about a slowdown in the U.S. economy, Jefferies has downgraded its stance on the IT sector from overweight to underweight. IT valuations are currently 20% higher than the 10-year average, with a P/E ratio of 25 times against a modest 10% EPS growth.

Conversely, Jefferies is directing its attention towards the metals sector, which stands to gain from a potential recovery in China and the implementation of safeguard duties. The brokerage is particularly optimistic about companies like Hindalco Industries and Tata Steel, as metal stocks have shown strong performance this year.

• Highlights in Metals:
  • Anticipated recovery in China boosting demand.
  • Potential safeguard duties on steel imports could lead to 20% EPS upgrades for every 2% duty imposed.
  • Strong performance reflected in manufacturing PMI exceeding 50 in February 2025.

Cautious Outlook for Pharma

The pharmaceutical sector’s outlook appears uncertain, especially with the impending U.S. tariff actions that could impact generic drug exports. Jefferies has revised its rating on this sector from overweight to neutral, while reducing its weighting on Sun Pharmaceutical Industries.

In summary, Jefferies’ strategic adjustments reveal a dynamic shift in investment preferences, focusing on sectors with strong growth potential while exercising caution in others. Investors may find these insights helpful as they navigate the evolving market landscape.