Overweight on Oil & Gas, FMCG and pharma space: Centrum

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Dhananjay Sinha, Economist & Strategist, Centrum Broking (CBPL) is overweight on oil and gas, FMCG and pharma sector. However, he is underweight on metals sector.

Sinha sees risks coming from profitability growth in the banking sector. In an interview to CNBC-TV18, he said, there is a fairly high possibility of asset quality worsening. "We believe that these sectors might see a downside revision in earnings," he added.

Also Read: Buying banks, autos; moving out of pharma says PN Vijay

Below is the edited transcript of Sinha's interview with Latha Venkatesh and Anuj Singhal of CNBC-TV18. Also watch the accompanying video.

Q: You are talking about a Sensex range of 15,500-19,800, what is the probability of the higher level of this range compare to the lower level?

A: We are giving higher probability to the downside versus the upside. At the current juncture, we are looking at downside of 12 times average forward for FY12 and FY13. We see a probability of cut in earnings by about 5%. Based on that, the downside risk is higher. From a longer term perspective, the average forward multiple would be around 15. That gives us the upper bound. In terms of probability, we are more inclined towards the downside on the multiples.

Q: Your report says, repeat of 2008 crisis could potentially take Sensex to as low as 11,200, what is the probability of that?

A: We are not giving very high probability to that. But, given the global scenario that is panning out, the probability is increasing. Last time we had attributed around 20% probability of a double dip. It might have increased to something like 25%.

Q: You said you could see a Sensex EPS downgrade by about 5%. So what is your new Sensex EPS for FY12?

A: We are looking at a 5% downgradation from the current consensus estimate which is Rs 1,235. We have taken an average cut of 5% for both FY12 and FY13.

Q: Maintaining that in second half FY12 the earnings downgrade will continue, what is view for FY13? What kind of earnings trajectory do you expect in FY13?

A: We are taking a 5% cut there. So, the correction is basically on both the years.

Q: You said you will take a downgrade from the consensus of Rs 1,235. So what is your working number for FY12 and FY13?

A: We are looking at the average for FY12 and FY13. Based on that, if we do a 5% cut, the average EPS comes to about Rs 1,270. So, there is a lack of visibility in terms of what might be the vulnerability for FY13. We are looking at an average of nearly Rs 1,200-1,270 for both these years.

Q: What would your overweight sectors be in that case is any?

A: In terms of our portfolio strategy we have been conservative. We are overweight on oil and gas, FMCG and pharma. We are kind of neutral on autos. We are kind of underweight on metals. We do see risks coming from profitability growth in the banking sector. The possibility of asset quality issues worsening is fairly high. Based on all this, we believe that these sectors might see a downside revision as far as earnings are concerned.