See downside in earnings for FY14: Antique

Dhirendra Tiwari, Head of Research, Antique Institutional Equities says earnings are likely to remain weak for the next couple of quarters.

He feels there could be downside to earning numbers because there is no meaningful pickup in the industrial activity on ground. Also read: June quarter earnings to worsen post rupee fall: Edelweiss Q: What about the fundamental moves of the market, what kind of medium term targets have you set out for the index after the kind of slippage that we have seen of late? A: Our medium term target remains unchanged at 21800 based on close to 15 times FY14 earnings. However, I would like to highlight that three-four months back, when we began, things were looking significantly better, GDP was bottoming, industrial production was expected to pick up, rates were supposed to be lowering down and currency was also looking favourable. Situation was much prettier then. Today the situation has been reversed a bit. Rupee has been the biggest problem. When we do on ground assessment of the fundamentals which was supposed to improve have yet not improved as such. So I would say that when we stand in the middle of the year, some of the expectations that we had in the beginning of the year might be starting to look slightly weaker. Nonetheless in our opinion it is not something which is extremely alarming. Situation can still be controlled, but I think today despite starting the year at slightly better footings we would assume that we are slightly on the weaker platform right now. However, yes the quarterly earnings have been slightly better than expected in many sectors. We stick to our year end target as of now but next three-four months we will have to really monitor how the growth picks up. Q: On the subject of earnings you seem to have actually cut your Sensex EPS target for FY14 by about 3-4 percent. Are you getting that confidence that earnings have bottomed out or are we going to look at fairly weak earnings for the next couple of quarters as well? A: FY13 our economy grew at about 5 percent and if the consensus is that economy will grow at 6 percent then there should be improvement in earnings growth. It is a very simple logic from that perspective. So, important point here is are we looking at improvement in the economic activity going forward or not. If we believe that India can grow at 6 percent then I am sure that you can grow at about 13-14 percent in FY14 as against 8-9 percent FY13. When we started the year things were looking better than they are looking right now. So, my personal assessment is there could be downside to these numbers primarily because we have still not seen any meaningful pickup in the industrial activity on ground. Secondly in the environment where elections could be around the corner, one cannot be 100 percent sure activities will pickup meaningfully. So, yes the confidence level will be slightly lower. There can possibly be some more downside to these numbers. In that sense one can argue that we might not have bottomed out as far as earnings are concerned. On markets, one could argue that there may be limited downside to the market also. I think investors by and large are looking at slightly moderate numbers. So, if nothing goes wrong significantly from where we stand today, one can probably not see meaningful downside in the market. However, yes there is a possibility of earnings downside from here.