At Prospero Tree, our investment recommendations have a time horizon of 3-5 years because that is the minimum time taken by a company to implement its strategy and moderate the impact of macroeconomic volatility. However, it is important that we monitor the companys performance on a periodic basis so that we get an idea of the direction in which the company is progressing. Quarterly results give us some indications of the companys performance and the impact of macroeconomic changes on its operations. The sharp rally in stock prices in the last six months has raised the earnings expectations from Indian Corporates. In this backdrop, we present below the summary of our expectations from some of the sectors that are closely monitored by Prospero Tree.


Summary of expectations
Given that there is some pick-up in the on ground demand, we can expect good earnings momentum coming from auto and select cement companies. Pharma sector will continue its strong earnings trajectory. The currency and commodity volatility will impact earnings of many metal and export oriented companies including the IT sector. Detailed sector expectation is listed below.

• Auto: We expect that the profit growth for the Auto Sector could be in the 20-25% range. Improving consumer sentiments, new launches, turning commercial vehicle cycle and strong growth in the passenger & 2-wheeler sales will lift earnings this time.
   
• Banking: Due to a lower base we expect a 20-22% growth for the sector. Lower treasury incomes & higher provisions had impacted Banks' earnings last year and hence we say a lower base effect will lead to a 20%+ growth. Of course asset quality, non-performing assets are the data points which will decide the direction of the stock prices as usual. With high to stable cost of credit, dull growth in loan disbursements, some PSU Banks' earnings could be hampered.
   
• Energy: In the Oil & Gas space we don't expect much to happen. Talking about the Power Sector, we expect earnings to decline 15% simply because of lower generation, higher fuel costs and under recoveries.
   
• Infrastructure: For Cement, Construction, and Real Estate we expect single digit profit growth as the companies placed here have not seen much pick up at the ground level. However, there can be an uptick in the medium term for the Infrastructure sector as the new Government starts policy action and FDI investments pick up soon.
   
• IT & Pharma: IT and Pharma stocks have been the darlings of the investor community simply with the kind of returns the sector has delivered over the last few years. This time, expect a brake on the earnings momentum for most names in IT space. Wage hikes and strong rupee during Q2 will put pressure on margins for IT majors. We expect 20% earnings growth for the Pharma companies. US has been a key driver for the Pharma Industry but channel checks suggest that the Japanese & Russian CIS markets have not done much for them in the second quarter.
   

NOTE: These are just expectations and should not be interpreted as a recommendations by Prospero Tree.

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