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See uptick in H2 earnings; Nifty at 9250 in 1-yr: IDFC Sec

The trajectory of earning growth which saw  a modest decline in the first half is likely to see recovery in the second half and FY17 will see a proper growth in earrings, is the word coming in  Anish Damania, CEO, IDFC Securities.

According to him earnings for the whole year would grow around 7 percent. First half saw a decline of 3 percent but second half would see a growth of around 10-12 percent and FY17 would see a growth of 20 percent on back of government’s increased spending, lower inflation, seventh pay commission coming through, OROP etc.

On basis of all the above developments, he expects Nifty to hit 9250 within a year.

It is strategy of IDFC Securities to focus on earnings growth stories going forward, says Damania, adding that the house is very bullish on the oil marketing companies from that perspective. They also see growth for sectors like IT, pharma, cement, private banks — so all around growth from a low base effect, says Damania from the sidelines of the IDFC’s Second Annual Investor Conference.

The house, he says has a bigger portfolio allocation towards largecaps than midcaps and smaller allocation to small caps. However, as earnings see an uptick, they will increase their exposure to midcaps, he adds.

From the midcap pharma space he like Marksans Pharma and Dishman Pharma.
He is also upbeat on Voltas and thinks the worst is over for them post the recent correction. The house has upgraded Engineers India to outperform now on back of it being the biggest proxy to capex spends by OMCs, says Damania.

They also have a buy call on United Spirits with a target price of Rs 4090 and expect earnings to accelerate for the company from hereon.

Below is the verbatim transcript of Anish Damania’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: What is the expectation from markets point of view now? It has been sort of lackluster for the markets, earnings season has not been that great but from now until the end of the year or maybe even for the next six months what kind of a trajectory are you expecting?

A: If you look at it, last year first half and the second half clearly were two distinct halves. In the first half there was a 12 percent earnings growth in the Nifty companies and we had seen about a similar 13-14 percent odd growth in the IDFC universe companies.

However, in the second half there was a sharp contrast, about 12 percent odd decline in earnings coming through and therefore the last two halves for last year were sharp contrasts. Now, what we are seeing is that off the high base effect, we have seen the earnings decline a little bit in this first half. Going forward, we see that there will be a sharp increase in earnings so according to our estimates we are looking at about a 7 percent growth for the whole year and so far the earnings decline has been closer to about 3 percent for the first half which means that as we go into the second half, you should see earnings grow by about 10-12 percent.

I would say that that could be a little bit of modest expectation so the trajectory of earnings is changing from a very sharp decline over the second half of this year to a very modest decline in the first half of this year and to a growth going forward into the next two halves. So, what we are seeing is the recovery in earnings coming through and in FY17 we are expecting to see a more bullish outlook on earnings because we are seeing increased government spending, rising urban income thanks to slower inflation, increase in financial savings, then we will have the 7th pay commission, the One Rank One Pension (OROP). Government is doing a lot of things like the Ujwal DISCOM Assurance Yojna (Uday) scheme which they have announced – it is surely great morale booster.

So, to that extent what I am seeing is that FY17 even the sales decline which we have seen in this year will stop and we will start growing. So, we are looking at about 12 percent sales growth and about a 20 percent earnings growth in FY17. So, typically I am fairly bullish on the earnings outlook going forward and that is very evident in the latest strategy report which we have written which shows that.

For more on his stock specific ideas, watch video

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