Whalesbook
Market Optimism Fuels Sector Rotation
The Indian capital markets experienced a significant uplift, breaching record highs, following the announcement of tariff reductions by U.S. President Donald Trump for India. This easing of trade uncertainty has catalyzed a strategic reassessment by international brokerage Jefferies, which has adjusted its model portfolio to capitalize on the evolving economic sentiment. The firm has notably reduced its allocation to information technology (IT) stocks, a sector previously favored, while concurrently increasing its exposure to the metals and materials sector, specifically highlighting Hindustan Zinc and JSW Steel. This pivot signals a broader thematic shift within institutional strategy, moving towards cyclical industries perceived to benefit from favorable trade policies and domestic economic drivers.
Metals Ascend on Policy and Commodity Tailwinds
Jefferies has designated Hindustan Zinc as an attractive play on silver and zinc, citing its strong cost advantages and the current elevated spot silver prices, which are approximately 50% above the December quarter average. Despite recent price corrections in its stock, the company's robust balance sheet, evidenced by a low Debt to EBITDA ratio of 0.15 and a high Return on Capital Employed (ROCE) of 85.81%, underpins its operational resilience. Jefferies forecasts a substantial 41% growth in EBITDA for FY27. However, external sentiment on Hindustan Zinc has shown divergence, with a downgrade to 'Hold' on February 1, 2026, due to mixed technical signals and valuation concerns, notwithstanding strong quarterly results. Globally, zinc prices are under pressure from increased supply from new projects, though smelter output has been constrained. Silver's price volatility directly influences Hindustan Zinc, as seen in its recent 13% stock decline following a sharp 14% drop in silver futures.
JSW Steel also benefits from a strategic policy environment. The Indian government's extension of safeguard duties on certain flat steel products for three years, starting at 12% in April 2025, aims to protect domestic producers from cheaper imports. This measure, coupled with China's market adjustments, is expected to drive a strong sequential improvement in JSW Steel's earnings. Jefferies projects a 34% quarter-on-quarter increase in EBITDA for the March quarter and a 45% year-on-year growth for FY27. Despite these tailwinds, JSW Steel's P/E ratio stands at approximately 39.37 as of February 3, 2026, notably higher than the sector average of 27.39 and its peer median of 22.05, suggesting a premium valuation. While analyst ratings lean towards 'Buy', the company's Net Profit Margin has seen a sharp decline between 2023 and 2024, and its current ratio suggests potential short-term liquidity challenges.
Zomato's Growth Narrative Faces Valuation Scrutiny
In a significant portfolio change, Jefferies has replaced Godrej Consumer Products with Eternal (Zomato) in its model portfolio, citing Zomato's sustained growth and margin improvements in quick-commerce and food delivery segments. The brokerage notes that Zomato's stock correction from its peak has improved its risk-reward profile. The online food delivery market in India is experiencing robust growth, projected to reach USD 337.15 Billion by 2034 or USD 683.86 Billion by 2035. However, Zomato's valuation remains exceptionally stretched, with a P/E ratio of 1,139.25x as of February 2, 2026, and 293x as of January 18, 2026. This elevated multiple far exceeds its peers and raises questions about the sustainability of its growth trajectory relative to its market capitalization of approximately ₹2.63 lakh crore. The company's introduction of a 'Pure Veg Mode' in March 2024 highlights its efforts to cater to specific market segments.
Sectoral Outlook and Macroeconomic Undercurrents
Beyond its core portfolio adjustments, Jefferies has identified several other sectors and stocks poised for potential gains. Automobile component manufacturers like Sona Comstar and Bharat Forge are noted for their U.S. exposure. The chemical sector features Navin Fluorine International, PI Industries, and SRF. In solar energy, Waaree Energies, Premier Energies, and Emmvee Photovoltaic Power are highlighted. The firm also cautioned that any increase in the landed price of imported oil and gas from the U.S. could negatively impact domestic oil marketing companies. Despite these specific considerations, Jefferies maintains a positive outlook on India's overall earnings growth for FY27, projecting a 5 percentage point year-on-year increase driven by nominal GDP expansion, a recovery in the banking sector due to margin improvements and credit growth, and a rebound in sectors like power and construction benefiting from favorable agricultural conditions. The broader U.S.-India trade deal, reducing tariffs and fostering competitiveness, removes a significant overhang, though the long-term implications of evolving global trade dynamics and commodity price cycles will continue to shape sector performance.