Jefferies Rebalances India Portfolio: M&M Joins, Tariffs Pose Threat to SMEs

Jefferies' India portfolio has been rebalanced, with M&M replacing Aditya Birla Real Estate. Chris Wood notes that 50% tariffs may negatively impact SMEs, employment-intensive sectors, and micro-finance/consumer finance companies. M&M is a preferred Buy, with a price target of Rs 4,200, a 5% upside from current levels. The report highlights the competitive landscape in Indian autos, the dominance of big companies in various sectors, and the bottoming of CASA ratios in banks.

In a strategic move, Jefferies has replaced Aditya Birla Real Estate with Mahindra & Mahindra (M&M) in their India long-only equity portfolio. This rebalancing decision, announced by Christopher Wood, the global head of equity strategy at Jefferies, is part of a broader review aimed at aligning the portfolio with the current market conditions and investment opportunities.

Since its inception in July 2021, Aditya Birla Real Estate has delivered significant gains, increasing by 183%. However, Jefferies has identified a stronger investment case in the auto sector, particularly in M&M. The decision to replace Aditya Birla Real Estate with M&M reflects a shift towards the auto sector, driven by favorable market dynamics and growth prospects.

According to Jefferies, M&M's passenger vehicles market share gains and favorable SUV demand shifts make it an attractive investment. The company is now allocated a 4% weighting in the portfolio, with a price target of Rs 4,200 per share. This represents a 5% upside from current levels, indicating Jefferies' optimism about the stock's future performance.

The move also underscores Jefferies' view on the competitive landscape in the Indian auto sector. M&M has risen to the number two spot in terms of market share, while Maruti Suzuki and Hyundai have slipped to multi-year lows. This shift highlights the dominance of large companies in various sectors, a trend Jefferies believes will continue.

In addition to the portfolio rebalancing, Jefferies has expressed concerns about the potential negative impacts of the 50% tariffs on SMEs, employment-intensive sectors, and micro-finance/consumer finance companies. The longer the tariffs remain in place, the more significant their negative consequences could be, both in India and the US.

Jefferies also notes that the competitive landscape in various sectors, including autos, banks, cement, property, and telecom, is characterized by the dominance of big companies. This trend is driven by consolidation, with larger companies becoming increasingly dominant. For instance, the CASA (Current Account to Saving Account) ratios of the ten large banks under Jefferies' coverage have declined to 37% in Q3FY25 from 45% in Q4FY22, indicating a potential bottoming of this ratio.

In conclusion, Jefferies' rebalancing of the India portfolio to include M&M reflects a strategic shift towards the auto sector, driven by market dynamics and growth prospects. The move also underscores Jefferies' views on the competitive landscape and the potential impacts of tariffs on various sectors.

References:
[1] https://www.tradingview.com/news/reuters.com,2025:newsml_L6N3UL084:0-jefferies-swaps-aditya-birla-real-estate-for-mahindra-in-key-india-portfolio/
[2] https://www.financialexpress.com/market/chris-wood-of-jefferies-rebalances-india-portfolio-whats-in-whats-out-and-how-tariffs-may-impact-markets-3964017/