Anish Damania, Head-Institutional Equities, IDFC Securities says the firm expects Nifty earnings growth rate to be 15 percent for the coming two quarters and will upgrade its Nifty targets from previous estimates of 27,000.
IDFC Securities expects the global volatility to continue in short-term but is bullish on Indian equity market from the earnings point of view.
Speaking to CNBC-TV18, Anish Damania, Head-Institutional Equities, IDFC Securities says the firm expects Nifty earnings growth to be around 15.5 percent for the coming three quarters and is looking to upgrade its Sensex target from previous estimate of 27,000.
He believes pharma, oil marketing companies and IT sector will lead the growth, and expects capital good sector and cement sector to do better.
Majority of companies would benefit on the back of ‘twin advantage’ of fall in commodity prices and rupee depreciation, he says.
On banking, he says private sector banks will lead the growth in Bank Nifty while public sector unit (PSU) banks will continue to struggle on non-performing loans (NPLs) coming from the steel sector.
Of upstream companies, he is positive on GAIL, Oil India and says ONGC correction needs to be factored in.
Commenting on the macro factors, he says the GDP data could be as expected. However, good numbers will not be a long-term impact driver for the market as it is likely to depend more on interest rate scenario and commodity prices' behaviour, he says.
Below is the edited transcript of Anish Damania’s interview with Anuj Singhal and Ekta Batra on CNBC-TV18.
Anuj: Do you think the correction is over and is it time to buy or do you think we could revisit the lows that you saw in the month of August?
A: Going in the short-term, it is quite possible that you might see some more volatility continuing in the markets.
However, I am fairly bullish on the earnings prospects of the company now. We are having a twin advantage of two things; one is the fall in the commodity prices. It has been substantial, all imported commodity prices which formulates a bulk of our imports, their prices have fallen substantially and rupee depreciation, which will benefit the earnings of those companies which are service oriented or sectors like pharma where the raw material price fall has been steeper than the rupee depreciation as well.
In Nifty, you find that majority of the companies will benefit a lot from the rupee depreciation and the commodity prices falling. This year, we are expecting about a 14 percent growth in the Nifty earnings and unlike in the past, where analysts started off with a high base and continued to downgrade the earnings, we will see the end of the downgrades starting this year.
We are looking at earnings of 13 percent, this is despite the fact that we had a 4 percent decline in earnings in the first quarter. So, looking at the second, third and fourth quarters combined, we are looking at about 15.5 percent earnings growth for next three quarters, most of which will come in the third and the fourth quarter as the base effect creates its own thing.
We have seen that market has responded to earnings growth fairly significantly, over the last 4-5 years. It started with being stock specific and as the Nifty earnings also starts moving forward we will see a similar impact.
So I wouldn’t be as bearish over the next 6-12 months on the Nifty as what a lot of people would suggest. I would think upgrading Nifty targets rather than downgrading.
Ekta: Would you have those plausible Nifty targets for us and a timeline also?
A: We are in the process of just formalising the numbers. Our last Sensex target was 27,000 and that is under review. So, once we formalise that, I will be talking about it. It looks like we are looking at an upgrade there.
Anuj: What is your sectoral call or portfolio call right now in this market? Which two or three sectors do you think can take leadership for this market because for better part the leadership was with private banks and that clearly has seen quite a bit of fall over the last few months, you have seen a lot of profit booking, a lot of decline in names like ICICI Bank and even HDFC Bank. So, from hereon what sector you think can provide leadership to the market?
A: We are seeing two or three sectors which can provide leadership and I wouldn’t discount the private sector banks. There has been a correction in the stock prices and that is a good time to enter because in the banking space, the private sector banks will continue to lead the growth story because we are not seeing any large slackening of earnings momentum in the private sector banks.
However, what we will see is the pharmaceutical and the technology packs will continue to lead the market momentum ahead. I would even step back to and say that even the oil marketing companies (OMCs) will also lead this momentum ahead.
The oil marketing companies, pharmaceutical and IT will be the clear winners. Private banks will continue the stride which they are into. Specifically within each of the other sectors, within a capital goods sector there will be some players, within the cement sector there will be some, so, all those companies where the earnings growth looks very strong and that is something we will bullish on.
Ekta: You wouldn’t be worried about what steel companies might do in the coming quarters in terms of earnings and the repercussion that might have on in terms of gross non-performing loans (NPLs) for bank stocks, private as well?
A: There is that worry in the market. So, steel stocks we have a negative view on steel and that continues and that will continue for some more time. Also, there is a large exposure to steel companies, about 6-7 percent of the bank’s books are exposed to steel companies.
A lot of them have already been classified as under restructuring; some of them will fall under NPA but that will be taken into stride. So, there will be some pressure, a large portion of that pressure will be felt by the PSU banks.
Anuj: You did say oil marketing companies, what about upstream companies? We have seen a bit of rally of course crude has also rallied a bit but at current valuations do think there is value in stocks like Oil and Natural Gas Corporation (ONGC), Gas Authority of India (GAIL) and Oil India or maybe even Cairn India?
A: It is GAIL and Oil India one can look at. ONGC, the fact that the stock has corrected now, maybe they would be pricing in all these corrections in. However, there is less of an earnings trigger in ONGC at this point of time. So at best I would stay neutral on that stock.
Ekta: Just a quick word with regards to the macros. The reason I ask is that we have the gross domestic product (GDP) data for Q1 coming out today but we have high frequency data points say such as the credit growth which also came out and that is now slowed down to 8.4 percent though it might lag GDP growth. In your sense do you think that Q1 FY16 GDP could have maybe a positive impact on the market if in case it does come at 7.5 percent or maybe higher?
A: I think more than the GDP data coming out, people are looking forward to how the Reserve Bank of India (RBI) Governor responds on the interest rate scenario; that is probably what is going to drive the market a lot more and then what the current GDP numbers would come.
So, GDP numbers could be a miss or come close to what most people are expecting. I don’t see that as a big issue which can drive the market.
Whenever data comes out to be positive for a couple of days you tend to see some positive impact on the market but I don’t see that as a big impact driver right now. I will look at how the commodity prices behave and how the interest rate scenario on the back of that behaves.
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