Earnings estimates likely to come down: BNP Paribas AM

Chakri Lokapriya, Fund manager - BRIC & Indian Equities, BNP Paribas Asset Management has a view that there is still more pain to come and the earnings estimates are likely to come down. Speaking to CNBC-TV18, he adds that there is some downside to the current quarterly estimates.

Excerpts from the exclusive interview with Chakri Lokapriya:

Q: Some of these emerging market seem to have gone into a bit of a sulk again, what are you picking up or hearing by way of money interest into markets like ours now?

A: There is still more pain to come or the earnings estimates are likely to come down. So as a result I think from an investor flow perspective it has been a wait and watch approach, so net-net there is neither subscription nor redemption. This quarter will prove to be crucial and I think there is some downside to the current quarterly estimates.

Q: Would you say the same for India as well because we have about to enter our own earning season here as well? Are you expecting some disappointments over the next three-four weeks?

A: I think what we could see is a slowdown in earnings in the short-term, this is primarily led by the domestic industrial companies. The domestic consumption is likely to remain strong, so from a Nifty earnings on overall are likely to come down as a result of a slowdown in some of the individual companies as well as sectors domestically not just export oriented.

Q: What do you have in mind when you said some of the industrial companies, which sectors were you referring to?

A: Capital goods sector have seen a slowdown for various reasons. This has been due to bottlenecking reasons. So I think that is primarily the concern and so when you have a US slowdown, which is an export led growth slowdown coming down. In any case your domestic growth is also coming down because of these hiccups that we are seeing in the system.

Q: You said you are expecting to see more weakness in some of these markets, so you are not in the camp that believes April will be a good month for equity or at least emerging market equity?

A: If you look at the markets probably Asia has had one of the worst quarters from 1993 or 1994 and the earnings estimates probably are around 13-14 times. The earnings estimates do not reflect further downside that one can expect but on the other hand, the valuations are probably reflecting that. So another best case is even if we do not have a trendless market, it could at best be a modest positive market going into the second quarter after the current earning season is over.

Q: What about the US market, what do you expect to hear or see from there over the next two-three weeks?

A: In the case of US, I think one can clearly expect another rate cut on April 30. Then in to the current recession if you go by at least history, the recession is likely to last another 8-12 months. So that takes us basically into this time next year and so until that point in time, I think we will continue to see various dataflow coming, which indicates a worsening consumer trend in the US and therefore it probably will take twelve months for the US to come out of its current modest recession.

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