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We have upgraded IT, pharma to overweight: Anish Damania, IDFC Securities
#1
[Image: anish-damania.jpg]

In a chat with ET Now, Anish Damania, CEO & Head-Institutional Equities, IDFC Securities, says would like to wait and see till December, how this thing pans out and then probably take a call on how the earnings are expected to move.

http://economictimes.indiatimes.com/mark...015416.cms
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#2
Yesterday the last of the Nifty-200 companies came out with the numbers. Our tracker shows that that quarter was evenly distributed. About 33% good earnings, 33% in line and 33% poor numbers. What did you make of the quarter and do you think quarter three will be very-very disappointing?
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#3
In the second quarter (Q2) we had seen very good signs of recovery in earnings. So if I were to exclude financials, then Nifty and BSE-30 earnings would have grown in excess of 15% or so, a substantial growth from the kind of numbers which we have seen so far over the last several quarters.
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#4
We were seeing these nascent signs of recovery and going into the third quarter, one had expected that because of a good monsoon and because of the pay commission bonanza, you would go into a bumper third quarter. October was an exceedingly good month for most of the corporates given the Diwali season. We have seen some of the numbers which have come by way of advance tax but that apart, it looks like the momentum which we have seen probably what happened in quarter two can to some extent get reversed in quarter three and may see an impact even in quarter four but that is the kind of impact one had expected given the fact that a large percent of the currency had been demonetised.
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#5
It has been a very tough exercise for our analysts. We have done a lot of visits across the country. We recently concluded a 12,000 kilometre road show across the country but that in a sense gave us something with respect to a slower demand but we would still like to wait for companies to report or at least give some indications of their numbers because it has been such a fluid scenario. So while dealers were reporting a 20-30% drop in sales, when we speak to companies, they are saying that sales are growing. So we are seeing in many cases, a lot of dichotomy and within the same sector also there are some companies which are saying that they are growing and some companies are saying that they are falling off the cliff.
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#6
We would like to wait and see till December, how this thing pans out and then probably take a call on how the earnings are expected to move. There is no doubt that FY17 earnings are going to be revised downwards and therefore to that extent, there will be a revision downwards even in FY18 earnings. In expectation of that, I have already cut my Nifty target for FY17 from 8900 to 8100 and I feel that a lot will depend on how we expect the earnings to grow next year and we will need to take stock of the situation come closer to the end of the third quarter and maybe also it will be more dynamic even in the fourth quarter as well.
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#7
But broadly if you break it down between sectors where is the bias, how have your overweight and underweight positions matured or evolved?
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#8
If one were to look at the whole sector, all consumer facing companies are the ones where we have downgraded so we have downgraded auto from overweight to neutral weight, for financials from overweight to neutral weight, consumers remain at neutral. We were earlier negative on staples and positive on discretionary, now we are negative on discretionary and positive on staples. So in case of consumers the weight almost remains the same.
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#9
In case of banking, we were overweight the NBFCs. Now we have become underweight on the NBFCs but the other banks remain positive. In fact, the corporate lenders where we were seeing some neutral views, we have become a little bit more positive because the impact on them will be significantly lower. But the biggest change which we have done is that we were underweight on IT, we were underweight on pharma, both of which we have upgraded to overweight.
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#10
We have retained our call on the oil and gas sector at an overweight to neutral positions. We have retained our overweight call on the engineering sector. Either way, we like companies which are more B2B, which do not depend on India for their sales and those which have a bias towards annuity type of earnings or utility type of earnings. Those are the companies which we like and some companies in the financial sector because they will be direct beneficiaries of the large scale money pouring into the banks.
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