Mkts could fall if earnings disappoint: Centrum Broking

Harendra Kumar, Head of Research, Centrum Broking said markets have priced-in a deceleration of earnings. He told CNBC-TV18 that the market is expecting Sensex earnings to be around 18%. “If it is lower than that, we are sure that the markets are likely to correct from there. They have built a base and the valuations are hovering around these expectations. Anything lower than that could see the markets coming down further.”

Excerpts from CNBC-TV18’s exclusive interview with Harendra Kumar:

Q: How will this result season pan out? Is it a make or break sort of result season or are most of the prices already factored-in and it is a non-event?

A: The markets have priced-in a significant deceleration in earnings. It has priced-in a credit degrowth in banking stocks. They are expecting around 20% growth and for the Sensex earnings to be around 18%. If it is lower than that, we are sure that the markets are likely to correct from there.

So, they have built a base and if the valuations are hovering around these expectations, and anything lower than that could see the markets coming down further. As the results flow out, there seems to be a good amount of slowdown and pressure. If it is lower than that, we could see the market correcting further.

Q: What are you expecting banking stocks to do? Are you expecting them to do really badly or do you see any damage on margins and on credit offtake?

A: We have done a study over the last two cycles and figured out that net interest margins don’t compress so significantly. We do see a credit slowdown and that has been factored-in. But valuations have corrected from their peaks and have come to more reasonable levels. So, things might not worsen from here.

Q: Do you expect any positive developments from the numbers?

A: Actually not on the numbers front, but because prices have come down significantly there is some steam left on the valuations front. If there are positive surprises, there may be select private sector banks that could be good bets over the long-term.

Q: What are you expecting by way of positive surprises at all and which sector?

A: With respect to sectors per se, we are only expecting in terms of downgrades. Otherwise, significant positive upsides have not been factored-in in this quarter’s numbers.