Alpha Ideas

Reliance Industries Ltd (RIL), HDFC Bank and Dr Reddy’s Laboratories are the only three Indian firms to figure in Barclays’ top 111 stock picks from across the world for 2015.

In its ‘Global Top Picks’ report, Barclays has said more than six years into the recovery, the key drivers of the market rally – low inflation, moderate growth and unprecedented monetary support – are set to have a reduced impetus.

“We are entering the next phase of the business cycle where valuations in equities and fixed income are relatively expensive and evidence is accumulating that the recovery is becoming self-sustaining, suggesting that monetary policy will be less supportive going forward,” it said.

RIL was the only stock pick in energy segment in Asia, while HDFC Bank is featured with China Taiping and China Resources Land in the Financial Services sector. Dr Reddy’s Laboratories also is the only stock pick in healthcare segment in Asia.

On RIL, it said it expects earnings to grow 47 per cent over 2015-18 even if oil prices remain low and volatile, helped by the completion of $16 billion in downstream projects that are all slated to come online over the next 6-15 months.

“We believe this provides one of the strongest growth outlooks among the global energy stocks Barclays covers,” it said.

Higher output from select offshore India gas projects that raises upstream production and a credible path to profitability in its ambitious data-centric telecom project (launch expected in December 2015) should drive earnings growth thereafter.

On HDFC Bank, Barclays said the bank was ideally placed to benefit from a macro recovery, owing to its strong low-cost deposit (CASA) franchise, clean balance sheet and increased investment in the network.

“It remains a leader in key retail lending segments and is strong in transaction processing, giving it access to float (CA income).

“The recent pickup in network investments and its focus on digital transactions should help it maintain its leadership position in CASA and grow loans 3-6 per cent faster than the system,” it said.

Dr Reddy’s (DRL), Barclays said, was a strong play on niche therapeutic areas (injectables and oncology) driven by a robust Para-IV pipeline in the near term and a significantly differentiated R&D strategy for Proprietary products and Biosimilars.

“We forecast revenue and earnings CAGR of 15 per cent and 20 per cent, respectively, over FY15 to FY17 along with a 440 basis points increase in ROIC. DRL is the least expensive large-cap stock in our Asia ex-Japan Healthcare & Pharma coverage,” it said.-from NDTV