JM Financial bets on banks, capex-led growth stocks with launch of new model portfolio for Indian equities

JM Financial has launched its India Model Portfolio with a bullish stance on banks, infrastructure, and domestic demand plays, while staying cautious on expensive mid-cap and small-cap stocks and export-oriented sectors. The brokerage said it is overweight on banks, real estate, telecom, infrastructure, defence and oil & gas.

The model portfolio marks a key shift in sectoral allocation, with JM Financial overweighting financials by 172 basis points relative to the Nifty 50, and banks specifically by 119 basis points. Among private lenders, ICICI Bank, HDFC Bank and Axis Bank top the brokerage’s preference list, while State Bank of India is its pick among public sector banks.

Capex, consumption, and RBI stance drive optimism

JM Financial sees a growth-oriented monetary policy under the new Reserve Bank of India Governor Malhotra, noting that the central bank may cut rates by 50 basis points in this cycle as inflation remains contained. The brokerage also flagged the government’s Rs 11.2 trillion capex outlay for FY26 as a strong growth catalyst.Rural demand recovery, aided by a predicted normal monsoon due to La Niña and improving food supply conditions, is another supportive factor, the brokerage said, citing a Nielsen IQ survey indicating improving rural consumption trends.

Large caps favoured as valuations stretch

While valuations remain elevated across the board, JM Financial noted that large-cap stocks offer better relative value. The Nifty 50 trades at 20.6x FY26 estimated earnings, versus 29.3x for the Nifty Midcap 100 and 25.2x for the Nifty Smallcap 100. Based on PEG ratios, however, midcaps appear cheaper, the brokerage noted.Still, JM Financial warned that the earnings downgrade cycle is not over. While FY25 estimates for the Nifty 50 were revised up slightly in April, FY26 and FY27 earnings estimates were cut by 1.1% and 1%, respectively — sharper than in the previous two months.

Sector bets and stock preferences

The portfolio includes a mix of sector leaders and niche plays. In oil & gas, JM Financial has a significant overweight driven by Reliance Industries, which it sees benefiting from recovery in retail and Jio, though petrochemical margins remain weak. In infrastructure, the brokerage backed Larsen & Toubro, citing a strong order backlog and 19% expected EPS CAGR over FY25–27.

In telecom, Bharti Airtel is the sole pick, while defence exposure is through Bharat Electronics. Metals are another favoured sector, with Hindalco, JSPL and Tata Steel making the list.

The brokerage maintained a neutral view on autos and IT services, citing limited volume growth visibility and client-side spending caution in IT. It expressed preference for TCS and Infosys in large-cap IT and Hexaware and KPIT among midcaps.

Underweight on internet, pharma, cement and consumers

JM Financial is underweight on internet stocks, citing continued uncertainty and patchy EPS visibility. While it likes names such as Indiamart and Just Dial on valuation grounds, the overall view remains cautious.

In pharma, the brokerage prefers hospitals and CDMOs over traditional pharmaceutical players due to better earnings visibility. JM Financial expects four of six large drugmakers to report earnings declines in FY27 and warned of regulatory risks tied to potential U.S. policy changes.

The brokerage also flagged expensive valuations in cement and consumer sectors. Although it expects rural demand and wedding-related consumption to recover in FY26, it believes much of the optimism is already priced in.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)