Motilal Oswal expects 5-10% earnings growth for FY13

Looking at the disappointing results from Infosys, Raamdeo Agrawal, Director & Co-Founder of Motilal Oswal Financial said it is not a company specific problem, rather it is an industry wide phenomenon impacted by the circumstances in the US and Europe. Deferral of expenditure is one of the main reasons for the slowdown which has affected growth projections, feels Agrawal.

In an interview with CNBC-TV18, Agrawal said the weak performance of IT companies is more specific to the current global environment rather than a very long term trend. He is also not very optimistic about earnings growth and feels it could be somewhere between 5-10% for this fiscal, against the expected 8% kind of growth. Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: What have you made of Infosys, one disappointment after another in sequential quarters, is it testing the patience of global investors, is there more downside in your book?
A: I think earnings season started badly with Infosys coming out with very weak results. I have not gone into results but, it is very clear that it is below expectations and even guidance is looking to be very weak.
It should not be an Infosys specific problem, it is an industry wide problem and what is happening in US and Europe in terms of deferral of the committed expenditure, I think is showing up in the short-term quarterly performance and maybe even for the year or next 2-3 quarters.
There is a kind of a hiccup in the global economy and corporations are deferring expenditure. That is what it is reflecting. But in the longer term, it will not be as bad as it looks to be right now in terms of growth projections. Maybe 10-15% kind of growth after sometime but, clearly this year looks to be a pretty bad year. Q: Generally, how are you feeling about technology, are you overweight in that sector or are you avoiding it because of all these problems they are facing on volume and growth?
A: No we have some presence. Actually we are present in Infosys and I still think that it is a good franchise. You have only 3 companies whose statements you can take on face value and they are TCS, Infosys and Wipro. The problem is for all of them.
Last quarter, I remember there was lot of bashing out of Infosys results because Wipro is saying that Cognizant is growing much faster. Then suddenly Cognizant results came and that was also disappointing. The problem is not for one company, the general behaviour of corporate expenditure and tech is being deferred.
That's what my sense is and it is more specific to current global environment rather than very long term trend for this particular industry. I hope it is not a very long term trend. Q: Stripped of this whole Infosys debacle and what's happened with the start of earnings season, how are you feeling about the market particularly on how heightened expectations are on policy reform?
A: Right now we are in the middle of the earnings season and the earning expectation was that it will go about 8-9% this year on the basis of financial sector reporting very good numbers. Technology was another sector and consumers space was the third. So the three legs of this quarters were expected to report stable numbers.
What we see is that one of the legs is already gone. The tech earnings season has started badly. I am quite sure that TCS and the other numbers could be better. But the problem is much more generalized and it is to do with what's happening in the industry per se.
Right now, the mood is that don't expect too much in general from the market because unless there is a massive earnings growth expectation, which is not there, I don't think there will be a very big move in the market. The interest rate cut is also expected to be very drastic.
So, combining these two I would think that it's a market which is gone nowhere. It will keep trading around this level and we keep looking for stocks which we understand and where we can put some money. It's a very listless kind of situation. Also read: Buyback was never under consideration: Infosys  Q: What will be a reasonable expectation for FY13 earnings growth right now? Will it be high single digit, no more, would we get stuck in the 1200-1225 kind of earnings per share for the Sensex finally, which limits the potential for any kind of major rerating?
A: We completed the year 2011-12 at about 1129-1130 as the Sensex EPS and currently the first quarter estimate shows that it is going to be about 1220. We are talking about Rs 90 on 1100 kind of thing, so that translates to 8% kind of growth.
But this is 4 quarters away and we are already seeing the first quarter, at least the start is somewhat disappointing. The reality will be anywhere between 5-10% growth and that is also not very good even if it is the upper end of the band. I don't see it going to be surprising us big time.