Better earnings growth going ahead: Basumallick | Economic Times

There is a possibility that we might consolidate in a range for a while and the sector rotation keeps happening while the overall broader indices consolidate and earnings catch up, says Abhishek Basumallick, Chief Equity Advisory, Intelsense Capital. How perturbed are you because of the global risks in the horizon -- be it Evergrande and then the power shortages in China or some taper talk from US ? Not as a long-term investor but as a market participant, what did you read into it?What is happening in China is very interesting and we seem to be at the cusp of a pretty long-term change in policy. Obviously there are implications in the market and whether it is Evergrande or the power crisis, it is in some way going to get reflected in the global markets. Personally, most of the negatives that are happening in China today will in some way positively impact India because although for global investors China has always been a much bigger market, India is coming out as an alternative destination. So it could turn out to be positive for India if we are able to get our acts together. How are you expecting the earning seasons to be in general or for your own portfolio companies?Earnings have been quite good over the last few quarters despite the fact that we have had lockdowns and partial shutdowns. Earnings have been quite good except for in some of those sectors which have been very highly impacted by Covid. But other than that, across-the-board earnings have been quite positive. I do not see any reason for that to change. In fact, earnings could get better. What is the earnings expectation growth for your own portfolio which is a mix of large caps and midcaps for the next two years? Do you expect a 25% earnings CAGR or lower?I would think that 25% should be possible in a lot of these companies simply because last year was low and with the economies picking up, things are getting into place. With the government initiatives -- be it PLI scheme or investment in infrastructure -- things could get better. How the market is valued, is a completely different ball game altogether. Have you been doing a lot of research? How have you been sharpening your knife? We have the AGM season right now. So, attending the AGMs of stocks that I own personally and following what is happening is pretty much what I have been doing. I read a lot in terms of what is happening in terms of global events. So I am trying to connect the dots between what is happening in China in the US or what is likely to happen in India more from a longer term theme perspective. And overall, how the companies and different industries are shaping up. What is the quality of overall economic growth? Do you see this kind of bull run to sustain for the next three,-four years? Is the quality of earnings and the quality of economic growth matching with the asset price growth?Stock prices have gone ahead of their fundamentals right now and that has been the case for quite a while. It is probably the time to see earnings catch up over the next year, year and a half, two years. If we expect a great deal from the market in terms of market returns, we might be disappointed. The earnings growth might actually do better than what the stock prices do because there is a possibility that we might consolidate in a range for a while and the sector rotation keeps happening while the overall broader indices consolidate and earnings catch up. What is the category of stocks where you have the highest weight? What kind of earnings do they offer in the next two-three years?Personally, as well as in our advisory, we have large holdings in chemicals. We have a large holding in pharma in API space, also in agrochemicals. So that is one spot. We have been recommending a few power stocks, a few engineering-based stocks in the last few months. Overall, we are in a space where larger pockets of industry earning growth are going to come back, industries which have been beaten down. If you look at PSU banks as a basket or some of the other spaces which have not done all that well like engineering, infrastructure and real estate have picked up in recent times. These are the spaces which have not done well over some period. When earnings pick up, the possibility of getting an upside is probably more in these areas rather than some of the great quality, great compounding names that we have held for the last couple of years in our advisory portfolio. What are some of the risks you are cognisant of which could derail this wonderful bull run which is going on right now in emerging markets like India?The obvious risk would be the US starting to raise interest rates; or globally if there is a move by central banks to reduce liquidity. That could impact flows. Socio-politically, there is always going to be a challenge in terms of just the way we are positioned with respect to China and what is happening in and around the region -- how the Chinese economy shapes up and how that impacts us in terms of oil, coal and commodity prices. Any real spurt in oil prices which probably is looking to turn around and go higher could be a significant negative. For the markets to really correct and see a downside, we will need to see some event we are not thinking of right now. The points that I am talking about the market is already aware of. But for a real big fall to happen, there has to be something which is not there at the back of our minds right now.