LAHORE - After four years of flat earnings, listed companies' profits are likely to post earnings growth of 20 percent in 2011 that will lead market to achieve index target of 14,000 this year, experts said. They observed that the growth will be led by energy and banks followed by cement and consumer sectors. They were of the view that other than taxes, oil prices would remain the key risk factor. If oil prices increase to average $85 per barrel in FY11 corporate earnings growth will be 23 percent while earnings growth will reduce to 18 percent if oil price stays at average $75 per barrel. Similarly any change in interest rates will also affect corporate earnings' marginally. Besides international crude oil price and interest rates, other risk factor for corporate earnings this year would be the new taxes whether it could be one time flood tax or asset tax on corporate with a view to finance burgeoning budget deficit. Experts believe that earnings growth in FY11 will be robust at 20 percent which will continue in FY12 and FY13 albeit at a lower pace due to below average GDP growth and non resolution of the circular debt issue. After FY11 earnings growth will stabilize at 10 percent resulting in three year average annual earnings growth of 13 percent in line with the inflation expectations. This earnings growth compares favourably with last four years average annual earnings growth of only 4 percent (average inflation 11 percent). However next three years earnings growth of 13 percent is still less than last 10 years average growth of 16 percent (with 10-year average inflation of 9 percent). Farhan Mehmood, a market expert, said in a report that after a decline of 21 percent in E&P;companies profit in 2010, E&P;sector is likely to post impressive earnings growth of 41 percent in 2011. This is primarily due to both higher crude prices and rising oil and gas production. Moreover, Banks are expected to come with a vengeance with lower provisioning and improving net interest margin (NIM), thanks to rising lending rates. Similarly, recovery in cement sector and consumer sector earnings amid better margins and growing consumer confidence respectively will also support profitability next year. Most of the investors are worried about new taxes whether it could be flood surcharge tax or the asset tax etc. However, it is not clear yet which kind of tax will be imposed and whether that will be introduce in next budget or it be applied on one time adhoc basis. Since the benefit of these taxes to government will be different in both the cases, the impact will also vary on the corporate earnings we believe. Experts suggest that if 10 percent flood surcharge tax is applied for 6 months effective January 2011, it will affect annual corporate earnings by 2 percent. On the other hand, if government charges taxes on fixed assets like the one we had under Finance Act 1991 and assuming 0.5 percent tax incidence, it will affect corporate earnings by 1 percent, according to our estimates. In that case the major hit would be on the manufacturing concerns including Cement and Fertilizers.Salman Abduhoo