India Infoline sees an earnings downgrade this qtr

Amar Ambani, Head of Research, India Infoline expects an earnings downgrade soon. He sees only a 14-15% growth.

Excerpts from CNBC-TV18's exclusive interview with Amar Ambani:

Q: What are your expectations from this earnings season? Where do you think the outperformance or the positive surprises might come?

A: As far as this quarter’s earnings are concerned, we are still working our numbers. We hope to release them in the first week of July. But overall, we are still working out and talking to managements.

Clearly advance tax numbers have been good. I think a lot of damage will start coming in from the next quarter. So, we do not expect too much of bad news this quarter. There will be some sectors that will underperform and some others that will outperform.

Interest rate sensitives like auto, real estate and banking especially with treasury operations will be hit this quarter. Interest rate sensitive sectors will be impacted. IT to some extent, going by their own guidance, expects back-ended growth. So, quarter one might not be all that great for IT.

Q: What about the oil and gas space, Reliance Industries and ONGC, what is the expectation there?

A: Oil and gas is one sector we like. Oil exploration clearly is a winner. At the same time there does appear to be some weakness, technically on the charts for telecom and FMCG but these two sectors will be good defensive plays in the current market. So, for oil and gas, Cairn India is one stock that we really like. In terms of growth, this quarter will report a 60% growth in turnover compared to a loss in profit last year. Our analyst expects a profit of Rs 128 crore.

There are a lot of positives going for Cairn. Rajasthan fields will go into production next year. Crude oil is on the way up. We estimate crude oil to be at USD 80 a barrel in 20 years. So, we think Cairn India is a good defensive play at this point.

Q: FMCG and pharma have been relative outperformers being defensives, though of course one is seeing chinks even in their performance in the last couple of weeks. How do you expect performance over there? At this point, is your brokerage putting out investment buys in any of these?

A: FMCG would be one of our buys. If you look at sectors across, there is not too much left. Some sectors are affected because of the interest rate scenario. A lot of them will be affected if their capex plans pickup heavily on account of debt. The government has managed to kill some other sectors like cement and steel, to some extent.

So, there is not too much to really to choose from. Defensive plays like oil, FMCG and telecom to some extent will do well. In FMCG we like ITC and we have a buy on ITC. There seems to be some weakness technically on the charts. But ITC looks like a good defensive play. Even if it it may fall by Rs 7-8, I don’t think it is going beyond that. We expect a 17.5% growth this quarter and 13.5% growth in PAT for ITC.