FY20 Earnings Will Be ‘Haywire’, Says Carnelian Capital’s Vikas Khemani

Investors looking to pick stocks based on earnings growth predictions for 2019-20 probably shouldn’t, says Carnelian’s founder.

(Photographer: James MacDonald/Bloomberg)
(Photographer: James MacDonald/Bloomberg)

Investors looking to pick stocks based on earnings growth predictions for 2019-20, probably shouldn’t, advised Vikas Khemani, founder of Carnelian Capital Advisors.

Its a “bad strategy”, according to Khemani, as India is still dealing with the liquidity crisis and other issues related to real estate, small and medium enterprises, and construction sectors.

India’s equity market has remained volatile since September last year after surprise defaults by IL&FS Group companies triggered a liquidity crunch. That, coupled with sluggish investment and consumption slowdown in the economy, hurt stocks. Lack of stimulus in the budget and a tax on foreign investors spooked markets further, and the rollback of the levy didn’t help.

The benchmark Nifty 50 Index has fallen 3.25 percent over the last six months, with heavyweights such as Yes Bank Ltd. and Tata Motors Ltd. tumbling 73 percent and 30 percent, respectively, among others. The BSE Sensex has fallen 1.8 percent during the same period. The government has announced a string of measures to revive the economy from a six-year low, and is expected to make more changes to boost growth.

Given the current environment, no one can precisely predict what will happen, Khemani said. It would be a better bet to look at the risk-reward a company, segment or market can deliver once the environment settles down, he said. “I would rather bet on FY21 numbers and can we get to a, let’s say, 18-20 percent growth. I would assign a very high probability on that.”

Other Key Highlights

  • Optimistic on the market after numerous steps taken by the government.
  • Market pessimism is overdone.
  • Should see a slow and steady recovery.
  • SIP inflows seem strong, highlighting maturity of Indian investors.
  • Investment cycle will get better as money starts trickling down in the economy.
  • Large companies generally get larger in such current environment.
  • Good, smaller companies where there are good balance sheets and good management will also get an opportunity to grow.
  • Wouldn’t be surprised if ICICI Bank hits $100-billion market cap in another five years.
  • Market seems to be liking companies which can give 18-20 percent return.

Watch the full interview here: