FY13 earnings growth can top 14% at best, 9% at least: MOSt

So far, a lot of listed companies have declared their January to March quarter earnings. The important highlight of the earning season has been that the estimates had got moderated significantly before the number season began, so, numbers have been fairly okay till now, says Rajat Rajgarhia, head of research at Motilal Oswal Securities.

At the index level, he sees an earnings growth of about 5-6% in FY12 and 13-14% in FY13. "I think it’s fair to assume that FY13 numbers will get moderated more closer to 9-10% growth," he asserts. Also read: See uncertainty in May, be stock specific, says Richard Ross Below is the edited transcript of his interview with CNBC-TV18's Mitali Mukherjee and Sonia Shenoy. Also watch the accompanying video. Q: About halfway through earning season, what has your prognosis been, more hits than misses or largely along expected lines? A: I think the important highlight of the earning season has been that the estimates had got moderated significantly before the number season began. Barring a couple of big numbers, which have seen some misses, likes of Infosys or Wipro, broadly the aggregate numbers looks quite okay. Infact, at the broader level, there are more number of companies that are either meeting or beating expectations. So, numbers have been fairly okay till now. That’s partly to do because the expectations have got toned down a lot over the last couple of quarters. Q: When we see the April auto sales numbers, there are perceptible signs of a slowdown. Any tactical changes you would make to stocks like Tata Motors, Maruti or even M&M in someone's portfolio? A: As far as the auto volumes are concerned, I think the big surprise came from Tata Motors. If you look at M&M, the tractor volumes have been sliding now over the last four-five months. That's a stock where generally people have been lying low for quite some time. Maruti, after the fabulous run from January till now, needs some breather. So, I won't be too much worried, maybe another 5-7% correction and you will start seeing things again looking good for Maruti as a stock. Tata Motors, the domestic volumes were definitely very surprisingly negative, but more importantly this stock is more a story of Jaguar-Land Rover (JLR). Till the time you see the momentum being strong in JLR, I don't think you will see any correction into the stock. But, at some point of time in this year, the domestic volumes need to recover for them to offset, whenever the base of JLR starts running off. Q: Are you guys working with a year-end target for the market? What would the underlying assumption be then in terms of earnings growth? A: This year, for FY12, we think we will end with an earnings growth of about 5-6% at the index level. Next year, while our estimates currently run at 13-14%, I think it's fair to assume that these numbers will get moderated more closer to 9-10% growth. At a 10% earnings growth in FY13, today we are trading at 14 times. Considering the macroeconomic uncertainties, 14% is perhaps the best multiple that you can think about to trade for sometime. _PAGEBREAK_ Q: The beat seems to be on the private sector banking side, especially with faces like ICICI and Axis Bank. How are you guys approaching that pocket? What is the top pick there right now? A: I think over the last few years private banks have become the backbone of this entire earnings growth story in India now. We typically talk about FMCG or consumer as more stable growing sector, but private banks are now overtaking that. The absolute amount of profits that private sector banks make on a quarterly basis is now more than the consumer PAT put together. The growth rates are far higher. I think they are growing on an average at 25% now versus consumer which is growing at 17-18%. So, we are very positive on private banks. We think they capture many themes that you can play into the system with some of the best managements also running those entities. ICICI Bank looks fantastic because the kind of improvement that they are showing on almost all the core parameters will do quite well to the stock. The current valuations or prices are more a function of the macroeconomic uncertainty. Otherwise, banks specific this stock needs to trade much higher than what it trades now. Axis, I think there is some realignment which needs to happen between the bank’s performance and the macro economic perception. People continue to be worried about how the next four quarters NPLs will build-up. But their quarterly numbers continues to do well. So, somewhere as the macroeconomic things get more stabilised, this is another stock which should deliver good returns. If you look at the last two-three years, this stock has not gone anywhere and they have been delivering earnings throughout this period. Q: IT has outperformed in the last ten days or so. TCS has rallied about 20% after it come out with its numbers. Should one look at IT from the outperformer space something like TCS or HCL Tech or is it more advisable to look at Infosys or Wipro which does not have some much of stock gain on their side? A: Technology as a whole is right now benefiting because people are a lot more worried about the domestic space. Given that you have 53 currency, it is advisable to hide into IT. Within that, the two best performing numbers have been TCS and HCL. So, very obviously people are getting into those names. But somewhere Wipro, which has taken a severe hammering over the last one week or so, again starts looking good because we think they have been making some of the right investments. Margins from some of the investments have seen delayed because of the environment. Now, they trade at 15 times earnings current year, very strong balance sheet. In the second half of this year, as growth picks up for them this is a stock which can again outperform the market. So, within the IT pack, Wipro and HCL Tech looks like the two stocks that we would advise people to be in right now. Q: Yesterday, most of the media stocks did well on the back of the TRAI regulations on digitisation. Have you picked any of them to play the entire media story? A: We will still need to understand the full implications of this. Given that there are several other developments, which are happening in this industry, besides the entire economic down cycle where advertising becomes a very significant part of their businesses, we are yet to firm up our views on how best to play this. As of now we, have a neutral reading on most of the broadcasters including Dish TV. So, right now our entire view on the sector is neutral. As and when we change our view, we will let you know. _PAGEBREAK_ Q: What is the call on telecom now where numbers operationally have not been bad this quarter, but the big overhang remains what’s happening on the regulatory front? A: It’s becoming quite difficult to track this space now because fundamentally numbers have stopped mattering for the time being, given the uncertainty that we have been seeing on the regulatory front now. Some of the things have been quite extreme for e.g. the recent regulations, it just changes the way one can look at the telecom space, if it were to implemented in its entirety. Otherwise, if you look at the quarterly numbers both Bharti and Idea was quite okay, although some revenue per minute (RPM) decline in both the numbers this quarter came as negative. But otherwise numbers wise companies are doing just about okay. Some of these regulatory uncertainties create a big doubt in the mind of investors. As a result, investors will stay away from the entire telecom space because you just don’t know what the thesis that you buy the stocks under, it just may go under change with some change in the regulation.