largecap stock ideas: How Kotak Equities tweaked its largecap portfolio

Brokerage Kotak Institutional Equities has increased its weight on consumer plays Britannia Industries and Godrej Consumer Products (GCPL) as it tweaked its largecap portfolio while lowering weightage for Macrotech Developers, even as the domestic brokerage remains positive on the residential real estate space.

Kotak has increased weights by 20 bps on Britannia Industries and GCPL to 1.5% each while reducing weight on Macrotech by 40 bps to 1.5%, it said in a note. A sharp increase in profitability over 2HFY23-1QFY24 has sustained valuations of consumption-related stocks despite volume growth remaining “fairly disappointing”, the Kotak note said.

As for Macrotech developers, the stock has run 19% in the past three months and now offers limited upside to Kotak’s 12-month fair value of Rs 800.

In its largecap model portfolio, banks account for a lion’s share of weight at 36.5%, followed by consumer staples (7.3%) and automobiles & components (4.1%).

Kotak is the most bullish on ICICI Bank (9.9%) followed by HDFC Bank (9.3%), Axis Bank (7.4%) and State Bank of India (6.1%). Among the consumer stocks, Hindustan Unilever carries the highest weight of 2.9%.

In automobiles, Mahindra & Mahindra and Samvardhana Motherson make a cut while Larsen & Toubro is the lone wolf in the capital goods segment with a weight of 3.8%.

PSU stock Power Grid Corporation with 2.1% weight is the pick in the electrical utilities segment; Apollo Hospital Enterprises in the healthcare segment and ICICI Prudential Life Insurance Company and SBI Life Insurance Company from the insurance pack are other notable inclusions in Kotak’s largecap portfolio of 18 stocks.Higher-for-longer interest rates in the US are likely to provide headwinds to recovery in IT sector revenues while higher global oil prices may reverse some of the sharp recovery in profitability seen over 2HFY23-1QFY24, the brokerage firm noted while recounting the challenges for the domestic equities.

In its view, Kotak said that on the macro front, weaker-than-assumed tax collections and CAD could limit the flexibility of the government to support the economy.

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