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Analyst's Conviction Amidst Q3 Performance
Jefferies has thrown its weight behind three Indian stocks, issuing 'Buy' ratings following strong December quarter results. The financial services firm has reiterated its positive outlook on HDB Financial Services, HDFC Asset Management Company, and IT giant Infosys, citing performance that outpaced expectations across the board. The brokerage sees significant potential for investors, projecting an upside of up to 22% in these select companies.
The positive sentiment stems from a confluence of factors identified by Jefferies' latest reports. These include robust profit delivery, expanding margins, consistent asset quality trends in the lending sector, steady inflows into asset management, and substantial new deal wins within IT services. This multi-faceted strength underpins the brokerage's optimistic view for the chosen entities.
HDB Financial Services: Strong Profit Growth
Jefferies maintained its 'Buy' stance on HDB Financial Services, setting a base-case target price of ₹920. This implies an approximately 20% potential upside from current levels. The company reported a 36% year-on-year surge in its December quarter profit to ₹640 crore, driven by reduced provisions and increased fee income. Profit growth accelerated to 45% when excluding a one-off provision related to new labor codes.
Assets under management (AUM) expanded 12% year-on-year to ₹11.49 lakh crore, with disbursements up 10%, primarily in consumer and enterprise lending. Net interest margins saw a 14 basis point improvement quarter-on-quarter to 8.1%, bolstered by stable funding costs. Asset quality indicators remained healthy, with gross stage-3 assets stable at 2.8% and a sequential dip in stage-2 assets, while credit costs undershot estimates.
Jefferies forecasts AUM growth to pick up to 16% in FY27, with lower credit costs expected to fuel earnings growth at a 29% CAGR from FY26 to FY28. Return on equity is projected to rise to around 16%.
HDFC Asset Management Company: Steady Flows Expected
For HDFC Asset Management Company, Jefferies reaffirmed its 'Buy' rating and a target price of ₹3,120, suggesting a potential 22% upside. The company's December quarter profit grew 20% year-on-year to ₹769 crore, slightly exceeding forecasts, thanks to higher ancillary income and cost management. Average AUM climbed 19% year-on-year to ₹9.21 lakh crore, powered by a 20% increase in equity AUM, which now constitutes 67% of the total portfolio.
Core revenue rose 15% year-on-year, while blended yields held steady at 46 basis points, despite increased employee costs from ESOP allocations. Market share in equity and debt funds remained stable, though liquid fund share saw a decline, impacting overall yields. Jefferies anticipates a 20% AUM CAGR from FY26 to FY28, driven by equity inflows. Profit growth is expected to benefit from operating leverage and stringent cost controls.
Infosys: Large Deals Boost Outlook
Jefferies reiterated its 'Buy' recommendation on Infosys with a base-case target price of ₹1,880, indicating an almost 17% potential upside. The IT services major reported December quarter revenue of $5.1 billion, a 0.6% increase quarter-on-quarter in constant currency, surpassing expectations. This performance was significantly supported by large deal wins totaling $4.7 billion, including a significant contract with the UK's National Health Service.
Adjusted EBIT margins improved by 20 basis points sequentially to 21.2%. Normalized profit increased 12% year-on-year to ₹7,625 crore, aided by higher other income and a reduced tax rate. Management revised its FY26 constant-currency revenue growth guidance upwards to 3.0%–3.5%. Jefferies interprets this revision as primarily reflecting the strong December quarter performance rather than an indication of significantly improved near-term demand. The brokerage expects Infosys to achieve a 5.4% constant-currency revenue CAGR over FY26–FY28, with margins stabilizing near 21%, supporting a 7.5% recurring EPS CAGR.