L&T and ICICI Bank could emerge as earnings dark horses, said Ajay Srivastava, CEO, Dimensions Consulting, during an interview with ET Now. He is also confident that consumption will be a big turnaround story.
Edited excerpts:
Would you concur with CLSA and Citi that earnings will continue to be muted or a revival is imminent?
Fourth quarter is going to be much better than what most people expect because we believe that the profitability is going to be significantly better for a couple of reasons. One, of course, is a lot of laggards are going to be a little bit better-off this time, which is mainly IT stocks and pharma — the two big laggards in the Nifty. They should do better.
Auto should be at par. By and large, no major surprises. Metal companies should be okay. The worry is of course there is one nationalised bank in the index. The real worry is oil companies. Perhaps, they could be the only big laggards in the market. Infrastructure wise, L&T should be okay. Most segments should be good this quarter.
Let us talk about auto. Do you think demand spurt plus a low base will lead to a very speedy earnings growth in Q4?
It's going to be pretty good across the board because it is not that one company made good this quarter. All of them by and large should be at par in growth rate. We already know what it looks like, we already know the numbers of the auto companies. And every one of them has done reasonably well. We know the dispatches coming through. I do not think there will be any kind of a divergence between market leaders versus the others in the field. It will be pretty well spread out across the board and that would be true for the auto sector.
That would also be perhaps true for the private banking sector because all would be roughly with about 20 per cent growth and profitability. By and large, Hindustan Lever should be at about 13-14 per cent or maybe a little higher than that. GAIL about 15 per cent… I think demand wise if it is auto, banking or everyone else, we should be at par. I do not think there will be an outlier like a Tata Steel. But by and large most index stocks would behave in a range this quarter.
You have mentioned oil and gas earlier. Would inventory gains from higher crude make up for subdued GRMs now that we already have it at $70?
Well, one does not know the mechanics of this pricing because oil is not only about ONGC, but also the retail marketing companies. That is a complex web to look at. But this quarter, at least the price increase has lagged the purchase price, that is one. Two, the benefit of the opening inventory is perhaps over at this point or maybe marginal. I do not know whether the oil marketing companies would get the same upside as a oil production companies.
The other leg of the market which you track very closely is consumption and a bunch of names are Britannia to Pidilite, Nestle, Page, Colgate, your favourite liquor stock UBL and USL. Can one expect strong earnings from them?
Yes, I think. We have invested in most of the stocks in the consumer space, whether it is Britannia or Bata. Their numbers would be fantastically good. We are very clear that not only they will give you a surprise on the upside on total increase in profit, but the margins will go up. The reason is the competition has been much less, the growth has been good and they have been able to push volumes. Also, price pressure has been much less and price increases have come through. Across the board in the consumer space, you will find that this quarter is going to be one of the typical turnaround quarters that happened once in a while in the industry.
I think the market has sensed it, the share prices have gone up in the last quarter quite appreciably. There may not be much price upside left, but result wise I think this will substantiate the customers' preferences who have invested a lot of money in this sector. If you are left behind, you better be invested. If you are there, I think enjoy the ride. I would believe that the good part of the price and the margin increase is already built into the share price of most of these companies.
Finally, are you expecting any outliers this quarter and dark horses that you think could surprise on the upside perhaps?
I think the dark horse should come out. L&T is one dark horse because that is a composite story and it has got L&T Finance, L&T Infotech, L&T IT services and L&T itself. I feel that could surprise us on the upside this quarter and that is a big one which can come through. The second one that can surprise you perhaps is going to be ICICI Bank because there is a battle of survival happening there and if I was the CEO and MD, I would pull out all the stops to ensure I have a stellar performance coming this quarter. Two dark horses in my view are going to be L&T and ICICI Bank. They could really surprise investors.
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