Indian companies are in an earnings upgrade cycle and every quarter from hereon will see an upgrade, believes Pathik Gandotra MD and Head of Research at IDFC SSKI Securities.

In an interview to CNBC-TV18, Gandotra spoke on what stocks/sectors may outperform in a market that he says will do well and his outlook for earnings across the board.

Below is a transcript of the interview. Also watch the video.

Q: What did you do after this earnings season? Some of your peers have not really come out thumping the table after this earnings season. Were you convinced?

A: The earnings season went broadly on line with what we thought. We did not expect great earnings to come through this quarter in terms of year-on-year (YoY) numbers. But we expected earnings to improve sequentially and they have. They have improved 5% sequentially although Sensex earnings are down 14% YoY and our universe earnings, excluding the oil-marketing companies, are down by 3%. Including the oil marketing companies, they have gone up 30%. But that was more or less in line with expectations.

We have been consistently saying that we expect the economy to revive and the market to be in a bullish phase. We stick to our target of 20,000 over a nine- to 12-month horizon.

Q: What is your earnings per share (EPS) target both for this year and the coming year on the Sensex companies put toegether?

A: The EPS target is Rs 800 for this year and Rs 1,032 for next year.

Q: Do you believe that there will be significant upgrades going forward or after looking at this quarter you are becoming a little more cautious in the expectation that there will be serial upgrades running through the next four quarters?

A: I am absolutely convinced that from hereon, every single quarter, the earnings will get upgraded because the pace of the economic expansion is something, which the analyst community, including my own, is not estimating.

Obviously, analysts would look at the sectors in more details. So as the macro things fall into place, it will lead them to upgrade.

So the upgrade cycle is firmly in place. I would tend to think that earnings upgrade across sectors like autos, cement, across capital goods and even metals from next year onwards, which would see earnings to be substantially higher than what our current estimates are.