Ambit Capital expects earnings growth of 4-5% in FY12

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Ambit Capital expects earnings growth of 4-5% in FY12

Saurabh Mukherjea, head of equities at Ambit Capital tells CNBC-TV18 that he expects earnings growth of 4-5% in FY12, but ‘definitely not more than a 10% earnings per share growth in FY13,’ he says.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

Saurabh Mukherjea, head of equities at Ambit Capital tells CNBC-TV18 that he sees India decoupling with the West, going into 2012. "The disconnect between West, which is gradually and relentlessly sliding into economic recession, and an Indian government that has finally woken up to economic reality, will grow wider and wider as we go into 2012," he says.

He expects earnings growth of 4-5% in FY12, but going into FY13, earnings momentum could see a cut from the generally expected 15% to not more than 10% on account of slow policy reforms and a difficult Q3.

Below is the edited transcript. Also watch the accompanying video

Q: We did see a flash rally across global markets but there doesn't seem to be too much follow up to that over the last 24 hours?

A: I think the situation in the western world is quite static. It will take a fair bit of policy movement in India to get investors enthused. The intervention couple of days ago by the central banks was an act of desperation and hence the calmness that you see is understandable.

That being said, over the last week, we have met a number of people in the governmental ecosystems. We are becoming much more optimistic that finally, the government has got a number of policy initiatives under way which could inject some life into our economy halfway through next year.
So the disconnect between West, which is gradually and relentlessly sliding into economic recession, and an Indian government that has finally woken up to the economic reality, that will grow wider and wider as we go into the 2012.

Q: So are you still holding your 14,500 Sensex target or have you scaled that up somewhat?

A: We have held meetings with officials in Delhi and at the SEBs over the past six-seven days. There is a lot that we have taken away and we need to digest all of that. We need to figure out the extent to which damage that has been done to coal, power and infrastructure sectors that can be undone. However, the situation in Europe, given how worrisome it remains, I think at this juncture, it's worthwhile staying circumspect and hence for now, sticking to 14,500. As we get more clarity on what the government is doing, and as we are able to think through which companies will be benefiting from the change in governmental stance, you will see more movement and more news from us vis-à-vis our Sensex targets, and also what are the best plays on this new-found governmental enthusiasm movement.

Q: At this point, what are you factoring in, in terms of earnings expectations for the year end and FY13?

A: I think for seven-eight months, we believe that FY12 will show something like 4-5% earnings growth. We are sticking to that. The more interesting question is what sort of earnings growth we will see now in FY13 versus FY12. Consensus numbers still seem to be around 15% earnings growth FY13 against FY12.

I have a sense that that will move from 15% earnings growth to more like 10% figure. 15% tends to be the no-brain consensus figure because that's the rate at which normally the GDP grows. But I think FY13 earnings growth will come off as we go into what will be a difficult earnings season in Q3. Since policy movements will take time to show up in earnings, Q3 earnings will be difficult and that will lead to a grind back of the FY13 earnings figure.

Q: What kind of policy reform kick is it that you going to begin pricing into the market, something like opening up FDI or core projects themselves given to infrastructure companies?

A: The picture that's building up pretty clearly in our heads is that very little will happen in the parliament. I think the Lok Sabha will remain a source of drag on the economy because I think the battle lines are drawn pretty clearly there. What we are seeing is outside the parliament, the government is moving forward in terms of trying to unfreeze the coal problem, I think the SEB problem is dealt with to a considerable extent with the exception of Uttar Pradesh, West Bengal. I think the other SEBs have done what they were suppose to do and hiked their rates.

In the infrastructure sector, environmental clearances will come through quicker. In the airline situation, I think there will be yet another rescue for Air India. There will be support in some shape or form for Kingfisher and Jet Airways . Given the economic climate, it will cataclysmic if those two airlines were damaged anymore than they already are. Finally in areas like airports, ports I think you will see more developer friendly, more investor friendly regimes being rolled out. So basically outside parliament is where the focus is because inside parliament nothing much will happen in the year ahead.