Credit Suisse’s Best Stock Ideas From India

India’s equity benchmarks have come off all-time highs, dragged down by a tax on long-term equity gains and a global selloff. Most marketmen see this as a correction before it resumes the uptrend.

Credit Suisse, in its ‘Asia Pacific Best Ideas’ report, has picked the stocks it expects to outperform or underperform over the next year.

Here’s the list:

Top Outperform Ideas

HCL Tech

• India’s fourth-largest information technology company, driven by its strong position in infra management and engineering services, is expected to grow faster than the industry in the medium term, Credit Suisse said.
• As about 60 percent of its U.S. staff is local, it’s relatively immune to the regulatory uncertainties associated with U.S. President Donald Trump's H-1B visa overhaul.

State Bank Of India

• India’s largest bank’s growth is expected to pick up on retail loans, even though profitability continues to be muted over the past few quarters after a merger with subsidiaries, Credit Suisse said.
• While slippages have been elevated, a large part of it has come from known stress and the stress outside non-performing assets declined to less than 3 percent of its loans, it said.
• The state-run lender is well placed to capture incremental loan growth and see its margins expand given the tight liquidity.

Sun Pharma

• Credit Suisse expects “a large swing” from specialty products—from a 15 percent loss today to a 15 percent profit—in the next four years “which the market is ignoring”.
• The increasing contribution of specialty products should address growth concerns in generics, helping Sun Pharma to return to an overall 20 percent profit growth trajectory, it said.

Tata Steel

• Following the ramp-up at Tata Steel’s Kalinganagar plant, the steelmaker’s India business is operating near full capacity, Credit Suisse said.
• It expects the global steel cycle to remain supportive. The pension de-linking in the U.K. and the proposed joint venture between with Thyssenkrupp AG’s European business will drive cost synergies, it said.

Relative Underperformers

Bajaj Finance

• Credit Suisse has concerns over the company’s ability to sustain high profit growth amid rising competition in key segments.
• New segments remain sub-scale to take over if growth in current flagship segments slows down, it said.

Dr. Reddy's

• The market is ignoring the high product concentration and is waiting for upside from potential launch of Copaxone in the year through March 2020, said Credit Suisse.
• It expects key products to face high competition over the next two quarters and lead to sharp consensus downgrades.

Ultratech Cement

• The market expects a sharp earnings recovery for the cement maker with the assumption of a cement upcycle starting from April, the brokerage said. But supply pressure will be high with product ramp-up from peers like Binani Cement and Murli Industries, it said.
• Demand growth has not picked up meaningfully for the industry as half of the drivers are still not contributing.

Credit Suisse has also listed the best ideas across sectors, and here are the Indian companies that feature in that list: