How Jefferies is reshuffling its portfolio as soaring bond yields give Nifty bulls sleepless nights

Jefferies has shifted its preferred Indian equity portfolio towards large capitalisation stocks as rising bond yields weigh on the Nifty and reduce the relative appeal of equities. The brokerage sees largecaps as better valued, while their earnings gap with midcaps is narrowing, and has added Kotak Mahindra Bank and Reliance Industries. Kotak closed at Rs 431.45, up 3.1% today, 2.3% over one month and 12.9% over three months, leaving it 3% below its 52 week high. Reliance ended at Rs 1,215.30, gaining 2.4% today but falling 7.9% in one month and 5.8% in three months, 24% below its 52 week high.

Higher bond yields can lift the discount rate applied to future profits and make fixed income relatively more attractive, which tends to pressure equity valuations where expectations are elevated. Jefferies' preference therefore points to rotation into larger, more liquid companies rather than a broad bullish call. Banks and oil and energy are directly exposed. Their sectors have fallen 3.5% and 3.9% over one month, respectively, and 4.3% and 4.2% over three months. Quarterly results showing a narrower earnings gap with midcaps, alongside sustained relative resilience in Kotak and Reliance, would confirm the view. Weaker largecap earnings, renewed midcap outperformance or easing yields would undermine it.