India is now the best-performing emerging market (EM) over the past month, three months and six months as the peak of the COVID-19 pandemic seems to be behind us for now. Looking at the recovery and optimistic Q2 corporate commentary, Jefferies has raised the financial space to "overweight".
Surprisingly, Indian financials have performed substantially better than the emerging markets financial index and is the fourth-best among 14 large EMs on a one-month and three-month basis.
Gradual reopening of the economy has brought upon improvement in GST collections (+4 percent), passenger vehicle sales (+30 percent), and electricity and petrol consumption. As per the brokerage, JRT is now at 93 percent of pre-COVID levels.
With COVID active cases down 11 percent as compared to the peak 20 days earlier, the brokerage feels further impetus to economic recovery is expected. Moreover, corporate commentary is reasonably optimistic.
"The housing chain is recovering with a jump in loan applications (+21 percent YoY) & disbursals at HDFC (+11 percent YoY) during Sep FY20; and a pick-up in residential sales at Sobha (+1 percent YoY in Q2 v/s. -37 percent in Q1). The improved cash-flows for Sobha and higher disbursals at HDFC also implies that construction activity has picked up," the brokerage report added.
Keeping in view that financials are an attractive play, Jefferies added 1 ppt to HDFC and ICICI Bank, taking financials to 'overweight'. Meanwhile, it has cut 1 ppt from Infosys and TCS taking IT sector to 'neutral'.