There is room for downward revision of profits, says Avendus, which is making sparks Ganeshram Jayaraman

According to Ganeshram Jayaraman, MD and Head of Avendus Spark Institutional Equities, the possibility of earnings downgrade is increasing as most of the factors have already been used. Jayaraman says there are about eight growth factors when the earnings profile is analysed. “When you evaluate all of them, almost all the other factors have been used, except the industry-driven volume growth factor.”

Jayaraman said there may be room for earnings and valuation downgrades, but it is important not to leave too much room for moderate downgrades. The challenge in today’s markets is that they are facing a lot of conundrums, he said. “On one hand, the overall picture in India is quite good, but the multiples are quite expensive and can pose earnings challenges.”

In the composition of the portfolio, the fund has been very decisive over the last three years, said the CEO of Avendus Spark. He recommended a decisive orientation of the portfolio towards cyclical sectors, industrial real estate, finance and automotive, while moving away from IT, consumption and consumer finance.

However, Jayaraman noted that given the potential policy changes brought about by the electoral mandate, there could be some scope for recovery in the consumption arena.

The private investment cycle is about to pick up, and so far it is a public investment cycle and a real estate investment cycle, he said. Jayaraman said public sector enterprises can lead the cycle, which could start in the next six to nine months. “I think this will feed into private sector investment next year, which will generate supply.”