Nifty likely to touch 8900 by end of this year: IDFC Sec

Following an above-average earnings report of corporate India in the last quarter of FY16, this fiscal year could see a growth of 20 percent in earnings, says Anish Damania, CEO and Head, Institutional Equities at IDFC Securities. Upgrades are coming through in this quarter and we are seeing tangible signs of recovery, he said, speaking to CNBC-TV18.He believes Nifty may touch 8900 levels by end of this year.His stock picks include Larsen and Toubro (L&T), which he believes will outperform in the next year or so. As for ITC, there could be more impact on the stock, as government looks to bring in more controls in the liquor and cigarette businesses.Among midcaps, he prefers Adani Transmission.Below is the verbatim transcript of Anish Damania's interview with Nigel D'Souza on CNBC-TV18.Q: What is your take? Let us talk about the big stock of the day, L&T. Has the bus been missed at around Rs 1,400 or do you think upside will be capped at around that Rs 1,500?A: L&T has been a story -- if you look at Q3, they had pretty much announced that their guidance for the year is going to be so much. So if they had back-calculated, probably these were the numbers, which would have come about in Q4.However, what happened in the past three quarters was a lot of disappointments so analysts were little conservative and obviously because of that even the fund managers were very conservative. Now it is completely under-owned stock. I have been on road shows and L&T were a consensus sell in the fund management industry.These numbers show that there is traction, execution is happening. So from that perspective we have seen a margin beat, we are seeing a sales beat, we have seen a profit beat. However, there is some disappointment on the order inflow but that is for the quarter.Given that the guidance is now about 15 percent growth in order inflow and 12-15 percent growth in sales, I would say that we are at the start of that upgrade cycle in L&T and whether we are at the start of an upgrade cycle, I have found that the stocks keep on outperforming.So my guess is that barring this move today, the stock will continue to outperform in next one year.Q: So being under-owned -- a lot of our retail public there are wondering whether they get it at Rs 1,350, should they dip in?

A: I will talk to my institutional investors and I will tell them that yes, this is the time to buy this stock.Q: Let us talk about big heavyweight, ITC. That is something you have been fairly cautious on. You said that you don’t like it too much, the numbers look quite good for ITC, would you be relooking at that or do you believe that it is a completely avoid?A: My sense is that now consumers have got into another category called consumers related and every state government, someday or the other comes and says liquor ban or cigarette not to be sold in this fashion or that fashion, taxes keep on going up on these things and there is no certainty on what is going to come about. So, it has become a budget play rather than a structural play in that sense.We have seen over the last several years that cigarette volumes have declined. So now with these new regulations coming up, where you need to put big signs of smoking is injurious to health, maybe there could be some more impact coming through. So I am not so gung-ho on that.Q: We have always been talking about private sector banks. We have Yes Bank today at around Rs 1,000. I have heard you talking about IndusInd Bank as well in the past. From the banking space, is there that temptation, go in there and just pull in one of those public sector undertaking (PSU) banking stocks into your banking portfolio?A: Yes, of course there is this huge temptation because a lot of stocks have fallen. There has been a lot of kitchen sinking, which has happened, the Reserve Bank of India (RBI) has been extremely at the forefront of getting this sorted out. Government is working on the non-performing assets (NPA) issue on a massive scale and the banks have been asked to report and take all the skeletons out.I would believe that the skeletons are out. It is there in that domain and now one needs to take a call as to whether a recovery will mean recovering some of those write-offs back. That is something which we still need to analyse.I would say that one can go into bigger banks like a State Bank of India (SBI). It has corrected quite a lot and we should start nibbling at those positions now. We have turned overweight on the financials in the last two months. SBI result is expected on May 27 so we are waiting for that. Let us see what SBI reports but I am sure a lot of kitchen sinking will be done and probably that is the time when you need to go into buying SBI.Q: Let us talk about earnings growth then for FY17, what exactly is the earnings growth you are estimating this year. In the past you have said around 20 percent, you are sticking with that? Do you believe that there is some upside to that?A: No, I think 20 percent is a  fairly robust target to give because we have not seen -- over the last five years, the growth has been about one percent compounded annual growth rate (CAGR) and to talk about 20 percent means you are building in a lot more upside.I am a lot more confident that it will happen because we are starting to see -- except the financials where we saw a lot of kitchen sinking -- upgrades come through. This is the first time when I am seeing in this quarter that upgrades are coming through. So, analysts had slashed their estimates quite a lot. We are seeing very tangible signs of recovery in the economy. So I would go more towards the fact that we would see 20 percent earnings growth.Q: Year-end target for the Nifty and give our viewers a few midcap picks as well?A: We are looking at a target of 8,900 and that stays right now for the time being. We will look at it as the earnings season progresses. If the earning season progresses over the next two quarters the way we are anticipating, maybe there is a chance for an upgrade in those targets as well.In terms of midcaps, clearly, I am preferring to buy some beaten down midcaps where a lot of people would find -- at this point of time I am not seeing anything but we are seeing that if this happens and it is already there in the price and if this happens, the stock could literally double.So Nava Bharat Ventures and Adani Transmission are the two stories, which I would go with. They are non-consensus and they are probably something which people would want to look into.