Large-cap Indian stocks are offering a better risk-reward opportunity than broader markets as valuations have become more attractive, according to Mahesh Nandurkar, Managing Director and Co-Country Head at Jefferies India.
Nandurkar said Jefferies has shifted its portfolio recommendations towards large-cap banks, non-banking financial companies (NBFCs), oil and gas companies and selected real estate stocks, as the brokerage believes these sectors are better placed to deliver returns over the next 12 months.
While foreign investor selling and higher interest rates may weigh on sentiment in the near term, he expects strong corporate earnings and healthy economic data to support the market.
Nandurkar said the market has become divided into two distinct segments.
“At the margin, the valuations for the largecaps are now looking much more attractive.”
He noted that roughly half the market, comprising sectors such as banking, information technology (IT), consumer staples, oil and gas and real estate, is trading below historical valuation averages, while parts of the broader market remain expensive.
However, he said investors should remain selective rather than relying solely on valuation metrics.
“We are not saying that everything that is looking attractive on valuation one should buy.”
Jefferies shifts portfolio towards large caps
Nandurkar said Jefferies has increased its exposure to largecap financials and energy companies after reassessing market valuations.
He believes banks, NBFCs, selected real estate developers and large oil and gas companies now offer favourable risk-reward compared with many higher-valued segments of the market.
The brokerage’s view comes even as foreign institutional investors (FIIs) have continued to reduce exposure to Indian equities.
Strong economy may bring FIIs back
Despite recent FII outflows, Nandurkar said India’s underlying economic indicators remain healthy and could eventually attract overseas investors again.
He pointed to strong credit growth, deposit growth, automobile sales, power demand and cement demand, along with healthy June-quarter earnings. He also said companies that have already released September-quarter business updates have largely reported encouraging trends.
“There is a clear disconnect between the way the markets are moving and what the bottom-up data seems to be suggesting.”
According to Nandurkar, that disconnect is likely to narrow over time as foreign investors recognise the strength of India’s economic fundamentals.
RBI rate hikes may continue
Nandurkar expects the Reserve Bank of India (RBI) to continue raising interest rates after its recent policy decision.
He said the RBI’s 25-basis-point rate hike was widely expected, but the central bank’s shift in policy stance was more hawkish than equity investors had anticipated.
Jefferies expects another 50 basis points of rate hikes, though the final outcome will depend largely on the US Federal Reserve’s policy path.
Higher rates could weigh on sentiment for rate-sensitive sectors in the short term, but Nandurkar believes markets typically price in such developments well before they occur.
Real estate outlook remains positive
Despite expecting higher interest rates, Nandurkar remains constructive on listed real estate companies.
He said listed developers continue to gain market share even if the broader property market slows. While higher borrowing costs could affect investor sentiment and valuation multiples, he expects operational performance to remain healthy.
Nandurkar believes the recent correction has improved valuations in the sector.
“The stocks should deliver decent returns with a 12-month view.”
Positive on infrastructure and power
Nandurkar also remains optimistic on infrastructure and power companies over the long term.
He said industrials and power have become the second-largest sector in the MSCI India index after financials, but many foreign investors remain underweight.
He expects sustained power demand, supported by the possibility of El Niño conditions extending into next year, to benefit utilities and companies across the power value chain, although highly leveraged businesses could face some pressure from higher interest costs in the near term.
Hospital sector correction offers opportunity
Commenting on healthcare, Nandurkar acknowledged rising regulatory concerns following recent policy discussions and legal developments.
However, he said such corrections have historically created buying opportunities for long-term investors.
According to Nandurkar, India’s healthcare infrastructure remains underpenetrated, and large listed hospital chains continue to expand into Tier-II and Tier-III cities. He believes these structural growth drivers remain intact despite regulatory uncertainty.
He added that the sector’s long-term outlook remains predictable and that recent valuation corrections have made hospital stocks more attractive for investors with a longer investment horizon.
For the full interview, watch the accompanying video
Jefferies expects banks, oil & gas and real estate to outperform
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