Goldman trims 2013 earnings estimates

Sticks to 7,000 Nifty target

International brokerage Goldman Sachs remains upbeat on India despite a slight reduction in earnings estimates for 2013.

“We remain overweight Indian equities on both a 3 and 12-month basis, with a 12-month (Nifty) target of 7000,” said the report dated March 8 and authored by Caesar Maasry, Sunil Koul, Timothy Moe, Kinger Lau and Richard Tang.

They have reduced their earnings estimates for 2013 to 11% from 14% earlier, but have upped estimates of earnings growth for 2014 from 14% to 16%.

“Our 2013 earnings numbers reflect a lower base due to higher effective tax rate this year and significant slowdown in growth in late 2012. Our 2014 earnings growth estimate reflects a recovery due to reduced fiscal drag and tax effect (tax surcharge may not be extended after FY2014) and expectations of a pickup in the investment cycle,” said the report.

The brokerage noted that the Union Budget announcement increasing the surcharge for domestic corporates with taxable income above Rs.10 crore from 5% to 10% would have a negative impact on earnings growth.

“The 10% surcharge on corporate profits for certain companies may impact EPS (Earnings Per Share) by 2% this year (this tax may not be extended after FY2014), but the reduced fiscal drag of the budget may have some offsetting effect,” noted the report.

Goldman prefers Info tech and the sectors more tied to the infrastructure capex and the investment cycle which includes Industrials, materials and diversified financials).

“On the other hand, autos and defensives, particularly consumer staples and telcos, look less favorable,” said the report.

The BSE Sensex rose 269.69 points, or 1.39% on Thursday to reach 19,683.23. The National Stock Exchange’s Nifty closed at 5,945.70.