ET Markets
Stock Analysis, IPO, Mutual Funds, Bonds & More

Nifty earnings can effectively double in next five years: Pankaj Murarka, Renaissance Investment Managers

As markets consolidate, we will see more investor participation, says Murarka.

ET Now|
Apr 05, 2019, 05.44 PM IST
Nifty earnings can effectively double in the next five years which means we can experience the earnings CAGR of 15% or so over the next five years, said Pankaj Murarka, Founder, Renaissance Investment Managers, in an interview with ETNOW.

Edited excerpts:

Where would you be hunting for opportunities if the market were to correct from here?

There are a whole lot of opportunities across sectors. The markets could correct because we have had had a pretty sharp upmove over the last six weeks or so. There will always be a pullback in the markets. Having said that, we continue to like private sector banks and especially the corporate facing banks because they are coming out of a deep painful NPA cycle and going forward, next year things should normalise. This would effectively mean that we will see a very sharp uptick in their profits and valuations in that space will continue to be remain pretty reasonable.

Apart from that, we have been looking at the engineering or the capital goods sector closely because it is a view that our investment cycle is coming back, albeit gradually. But we are seeing signs of greenshoots on the private sector investments as well now. Once elections are out of the way and we get a stable government in place, probably we should see a stronger rebound in investment cycle. Engineering and capital goods is another sector which we are looking at closely.

Everyone is talking about how the how earnings are supposed to catch up. What is the growth potential you are anticipating? Any specific sectors that you are going to be watching very closely to see if we can see earnings in line with expectations?

I have been saying this for a while that we have come to an end of a probably prolonged earnings recession. Over the last 10 years, from 2009 onwards, which was the year immediately after the crisis, and Nifty earnings was something like about Rs 250 odd. FY19 Nifty earnings should be about Rs 500. It has taken 10 years to double Nifty earnings effectively, which means a CAGR of 7%.

In the last 10 years, Nifty earnings has been trailing normal GDP growth but the good thing is now we have reached a stage where we have done a deep dive analysis on all the Nifty companies as to how the earnings could potentially be over the next five years. Our view is Nifty earnings can effectively double in the next five years which means we can experience the earnings CAGR of 15% or so over the next five years. The good part of this earnings growth is front loaded. We are expecting 20% plus kind of a earnings growth going into the next year FY20.

All I am trying to say is we have had a period where earnings growth has been very weak or earnings have been missing but that is behind us and looking forward, we should expect a very sharp rebound in earnings going forward.

What is the outlook for the capital goods space? The consensus is that the likes of L&T are likely to deliver strong set of numbers, BHEL not so much. Which are your picks within this space?

We like some of these stocks including L&T and just a disclaimer here we have ownership in some of these names which I would talk about. The good thing is that public sector capex or investments continues to remain strong. We have seen some pullback over the last quarter but I would not read too much into it because that is due to election seasonality. Once we are through with the elections, industrial capex will recover. It has been pretty healthy over the last almost eight quarters. Companies in the industrial capital expenditure sector have been doing pretty well. They have been recording revenue growth which are near teens or high teens kind of a thing.

We are also seeing recovery in the brownfield capex, though there are a lot of projects which are on the standby and probably some of these projects will get announced once we are through with the elections. The outlook for this whole sector from a medium-term perspective continues to remain strong and some of these companies will have a very strong order intake going into this quarter.

The sugar sector is in ship shape. Dhampur Sugar, Mawana, Balrampur, Shri Renuka are all having a fairly good run. Do you track this space at all?

No, not really. I do not have a strong view on the space, the only thing I broadly understand is one fundamental shift or change that is happening in the sector is that government has announced MSP for the sale of sugar price and government is strictly implementing MSP prices for sale of sugar by sugar companies. This does bring about a fundamental shift in companies which effectively a), puts a floor to the lower sugar prices in years like this when we have excess sugar production; b) ensures that people do not sell below that MSP which effectively covers their cost. In years when we have significant surplus sugar production, these companies probably will not make losses though they might end up with higher inventory.

TCS and Infy would be first in line to declare numbers, What are you hoping to hear in terms of a traction in BFSI, retail and the momentum in digital where a large chunk of the new revenue pie is coming in from?

As you said. the digital piece of business for all the Indian IT companies has been growing at a very significantly higher rate. It is growing at mid 20s or even at 30% for some of the companies and given the kind of trend we are seeing in IT spending by the Fortune 500 companies, that spend is only going to accelerate.

The good thing is now digital has become a very meaningful part of revenues for some of the leading Indian IT companies. One would like to hear from them in terms of what their feedback or the commentary they have got from their clients or key clients in terms of how IT budgets or spends are likely to be for next year, how the digital spends scales up. Probably BFSI has been somewhat sluggish in terms of uptick in growth. If we can see some buoyancy coming back into IT spends for BFSI companies, that would effectively mean that these companies can continue to clock double digit growth going into next year.
ET Now: You must be tracking the Jet story also. What is in it for shareholders who are still stuck into it or traders?
Pankaj Murarka: I have no clue about it. There is one story which has been all over the place for almost like nine months. I still think that is a valuable asset because it is still a strong brand and they have a lot of assets in terms of their parking slots at some of the key airports in India and globally which is a very valuable asset in this aviation business.

Obviously the company needs to be put on a more sustainable financial plan so that they can get back to business. As an asset, there is significant value to it but given so much of news flow every other day in terms of which way things are going it is very difficult for one to take a call on the business. What one would like to do is probably let things settle down, let clarity emerge in terms of which way this whole restructuring goes and see who the new owners are and then probably take a view.

There has been a sense that broader markets will play catch up and we are seeing that even though some of these pockets are also moving on the back of news. Nonetheless, we are starting to see increased participation. Do you expect to see more of this?

Yes, absolutely. I think so because over the last six weeks, we have seen the Nifty move pretty sharply. We have seen something like a 10% plus kind of a move in the Nifty over the last couple of months whereas the midcaps and the smallcaps have not participated in the rally.

Also, the fact remains that we have seen very sharp correction in both midcaps and smallcaps over the course of last year. The rally will get much more broad-based from here on. A lot of investors have been waiting on the sidelines for an opportunity to participate into it.

As we see some pullback or as markets consolidate, we will see more investor participation coming in as well.

Also Read

Pankaj Murarka on when to start nibbling into midcaps and smallcaps

We are getting more pro-cyclical, looking at midcaps and smallcaps: Pankaj Murarka

Domestic cyclicals and investment-oriented cos to drive growth in FY21: Pankaj Murarka

Some staple stories better than discretionary part of consumption: Pankaj Murarka

PMS & AIFs: Market should be allowed to form own fee structures, says Pankaj Murarka

Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links

Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service