Jefferies Rejigs India Portfolio: HDFC Bank Out, MCX In

Christopher Wood, Jefferies' Global Head of Equity Strategy, has undertaken a significant overhaul of his India long-only portfolio, as detailed in his latest 'GREED & fear' note. The prominent changes include the removal of India's largest private lender, HDFC Bank, along with PB Fintech (PolicyBazaar) and REC Limited. In their place, Wood has inducted Multi Commodity Exchange of India (MCX), eyewear retailer Lenskart Solutions, and non-banking financial company (NBFC) Bajaj Finance. These adjustments underscore Jefferies' reinforced bullish stance on India, viewing it as a standout emerging market story amidst a strengthening domestic economic landscape. The decision to rejig the portfolio stems from a confluence of positive macroeconomic indicators in India. Jefferies analysts highlight robust domestic demand, accelerating bank credit growth, a return of foreign equity inflows, and supportive measures by the central bank to stabilize the rupee as key factors bolstering India's market outlook. Wood noted that bank credit expansion has reached its fastest pace in over a decade, with an impressive 17-18% year-on-year growth during 2026 (up to July 15). Corporate lending has emerged as the strongest segment, growing at approximately 20% year-on-year, outpacing agricultural lending (17%) and retail credit (16%). Healthy demand in the automobile and real estate sectors further contributes to the positive domestic narrative. Foreign institutional investors (FIIs), who had largely been net sellers for the year, showed a significant shift in sentiment in July, turning net buyers of Indian equities. Data indicates FIIs pumped approximately $2.45 billion into the Indian market during July, reversing a trend of year-to-date outflows that had totaled around $25.4 billion. This turnaround is partly attributed to the unwinding of the 'memory chip trade' globally, directing capital back towards diverse emerging markets like India. Furthermore, the Reserve Bank of India's (RBI) initiatives to strengthen foreign-exchange liquidity have also played a crucial role. The special window introduced for new three- to five-year Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits has attracted substantial inflows, amounting to approximately $41 billion by July 31. Jefferies anticipates these inflows could escalate to $80-100 billion over the following two months before the scheme concludes. Additionally, the removal of tax on interest income from foreign purchases of government bonds has generated an estimated $8.7 billion in net inflows since early June, contributing to a more stable outlook for the Indian rupee. Regarding the specific portfolio changes, HDFC Bank's exit, despite its stature as India's largest private lender and a heavy weight in benchmark indices, signifies a reallocation of conviction rather than a negative view on the stock itself. REC Limited, another stock that exited, had delivered a substantial 228% return in rupee terms since its inclusion in December 2022, reminding that exits don't always indicate a negative outlook. The new entrants—MCX, Lenskart Solutions, and Bajaj Finance—have each been assigned a 4% weighting in Wood's revised portfolio. Wood also increased the allocation to Eternal (formerly Zomato) by one percentage point to 5%, funding this by trimming Bharti Airtel's weighting to 4%. Financial stocks continue to hold the largest sectoral exposure in the portfolio, accounting for 26% of the overall allocation, with SBI Life Insurance, Adani Ports, and GMR Airports being the three largest individual positions, each carrying a 6% weight. Jefferies' latest 'GREED & fear' note, authored by Christopher Wood, is keenly watched by global investors for insights into emerging market strategies. The current adjustments reflect an increasing preference for sectors and companies poised to benefit from India's evolving infrastructure and retail landscape, alongside a continued belief in the country's macroeconomic resilience. The updated portfolio aims to capitalize on these domestic tailwinds, reinforcing Jefferies' overall optimistic perspective on India's growth trajectory and its potential to outperform other Asia Pacific markets.

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