Expect 20% corporate earnings growth in FY17: IDFC Sec

He is also positive on gas companies within the oil and gas space and few specific companies in the automobile original equipment manufacturers '(OEM) space.Below is the transcript of Anish Damania’s interview with Reema Tendulkar and Latha Venkatesh on CNBC-TV18.Reema: This rise in crude prices has spurred a global risk on that we are seeing percolate to commodities, to currencies as well as to the equity markets. At what point does it start hurting India and India could start underperforming?A: As long as the risk on rally is there, India will benefit, because what we had seen when there was a risk off phenomena, last one year and more particularly over the last three months, we had seen substantial foreign institutional investor (FII) outflows from our market and therefore, markets fell from a high of about 9,200 way down to less than 7,000. Now, that risk on rally is gaining speed, we should benefit from that. But, having said that, what I am seeing is that we are actually at the cusp of an earnings growth momentum which partially was led by fall in commodity prices. They will still be substantially lower than what they were about a year ago. So, from that perspective I still feel that earnings growth momentum is still on. And given the fact that there is a kind of a stimulus in this Budget, both on the rural side as well as on the urban side, we would see demand growth also come through. So, in my view, there will be some improvement in commodity prices, but given that global situations still continue to be weak, I do not think there will be a runaway rally in global commodity prices. So, to that extent, I am alright and we continue to have our belief that earnings growth will continue to remain strong. We are looking at about a 20 percent kind of earnings growth for FY17 and that is very well likely to pan itself out.Latha: So, are you a buyer at all because the markets have come up a long way. At current levels, are you a buyer?A: Yes, our thesis has been that stay with the earnings growth story and we still can find a lot more earnings growth stories in this market. So as long as we stay with those earnings growth stories, I am not so worried about where the market will be headed – 10-15 percent higher. What I am bothered about is the mix of stocks which I would like to go with should have an earnings growth story and that is something which we are focusing on.Latha: Which are those stocks that you are focusing on, where you see earnings growth?A: One of the largest earnings growth which we are seeing is in oil marketing companies. You are seeing an extremely strong refining margin cycle, plus a very stable marketing margin cycle and also, we are seeing very large volume growth coming through. We have seen fuel growth at about 6-7 percent through this year, which has been one of the strongest years in terms of fuel volume growth. So, all these three factors together makes oil marketing companies an extremely good story to look at.The second portion of the goods story in the oil and gas space is the gas business. What we have seen is that there have been renegotiation of contracts of gas at substantially lower prices, which means that both on the cost front as well as it will help the volume pick up for the gas companies. So, both volume as well as in terms of margins, we will start seeing gas companies also gaining quite a lot.So, GAIL, Gujarat Gas, Petronet LNG are the big beneficiaries out there. So, this is in the oil and gas space. We continue to like some stories in the auto space like Maruti for example and also Eicher Motors. We also like the IT sector where we are seeing a 13-14 percent earnings growth come through. So, overall wherever we are seeing earnings growth, we like those stories and these are some of the sectors which I mentioned to you where you see good earnings growth.Latha: What were the key takeaways? Does this improve your interest in Bharat Petroleum Corporation (BPCL)? He actually said gross refining margins (GRM) will fall to USD six.A: That is basically, what you are looking at a quarter-on-quarter (Q-o-Q) impact and obviously, last quarter the GRMs were fairly robust, given our assumptions that the oil refining companies will do about USD 5.5 in terms of the whole year’s GRMs. But just wanted to give a brief perspective on that. In this year, if one were to look at, nearly Rs 1,200 crore of losses on account of inventory losses for oil were there in this year. Most likely in a scenario where oil prices would have stabilised, these losses will not appear. So, to that extent, you can easily see about a 15-20 percent earnings growth coming through in all the oil marketing companies just purely on the basis of the fact that the inventory losses will be very negligible next year. And, the GRM cycle, whatever said and done is remaining strong. And given the fact that the Indian slate for producing these distillates is in favour of petrol and diesel, where the crack spreads are higher than the Singapore GRMs, you are going to see the Indian refiners will benefit more than what the Singapore refining margins tell you. So, as a result of this, we are extremely positive on this and one more thing which one needs to note is that government has taken a hike or these companies have taken a hike in petrol and diesel prices, a fairly hefty one even while the parliament was in session. So, it just goes to show that the hike in petrol and diesel prices are getting delinked from the government process and that by itself should be a good rerating story for all these oil marketing companies which trade five times EV to EBITDA, FY17.