In his analysis of the day's stocks on CNBC-TV18, SP Tulsian of sptulsian.com, explains that though the penalties in the expected CCI order regarding cartelisation in the cement sector might be light, it may have an adverse impact on the entire sector especially in the case of Ambuja Cement, Ultratech, and ACC.
Below is an edited transcript of the analysis on CNBC-TV18. Also watch the accompanying video
Q: What do you make of the fall in rate-sensitive sectors like real estate and public sector banks after the policy?
A: There is massive liquidation which is more of a trading nature. The technicals are now making these two sectors the most vulnerable because of huge built-up positions on expectations that the RBI would cut rates was very high.
The RBI's decision to leave rates unchanged has forced the market to adopt a negative stance which is causing massive liquidation.
In the last one week, there was some correction in the Bank Nifty on Thursday which built up on Friday and was swiftly raised by 200-250 points on Friday.
But real estate stocks have been seeing a lot of long positions being built-up - HDIL, DLF, Indiabulls Real Estate. I am not talking of the cash-segment stocks like Parshwanath which also have been seeing huge positions being built up. So probably all the weak hands are now exiting from all these stocks and causing a steep correction.
A: Tata Steel is increasing its stake in Tata Sponge to 51% by making an open offer of about 11% and a similar initiative is being implemented by Tinplate which is increasing its stake to 74% by making an open offer of 14%.
But I don't think that this kind of upside is really sustainable. If you see Tinplate over the last one year, it has corrected from Rs 90 to as low as Rs 45. Even if I go by the acceptance ratio theory, which will be one out of every two shares in case of Tinplate and may be two shares out of every seven shares in case of Tata Sponge.
I don't see the prices sustaining at those levels. I don't think that Tata Sponge can really rule at Rs 340-345, if you are making an open offer at Rs 375. So, one should take this opportunity to exit even if you have bought the shares maybe at Rs 60-65.
The effect of this has spread into other stocks like Tata Coffee and Mount Everest Mineral where Tata Global Beverages is expected to initiate a similar move. So, instead of using this opportunity to buy, investors should exit from the stock at these levels because it is very risky.
Those who will be buying now, will not be able to see this price-level again to exit. The upside is limited to 2-3% on all these stocks.
Q: How do you approach about RComm? It had a good rally last week on the flaglisting news, but has fallen 5% today.
A: I don't think that much weakness can really be seen in the stock from hereon. You are right that the news of the flaglisting or the expected mobilisation of close to USD 1 billion by the company was seen quite positive.
But whatever rally was seen last week was wiped off today because of the general weakness in the market. But I think that investors should really be brave enough to take a long position on the stock at around Rs 62, because I do not expect the share to fall below Rs 60.
Q: Sesa Goa and Sterlite have been down and tomorrow Sesa Goa's shareholders will meet to discuss the approval of the merger with Sterlite. How would you approach both of these stocks from an investor's point of view?
A: The share is definitely looking good from an investor's point of view. But there is expectation of opposition to the merger because it is being viewed unfair by shareholders of both Sesa Goa and Sterlite.
But if you take a view over a horizon of 6-12 months, probably Sesa Goa looks lucrative at it will ultimately be a combination of all the ferrous and nonferrous segments which will transform it into a very big company. But likely opposition from institutional investor could keep the share weak.
If the merger goes through, then one can take a positive call on the stock from a trading point of view as well.
Q: A lot of these textile shares have corrected today - S Kumars, Arvind and Century Textiles. Would you use this opportunity to buy with a trading perspective or would you just stay away from this segment?
A: Purely from a trading point of view, I may go with Arvind because the level of Rs 70 for the stock seems to be quite strong. There was renewed trading interest in the stock on correction in price-levels.
So it looks a good share from a trading point of view, but on other two stocks, investors need to have a fundamental or investment time-horizon of at least 3-6 months.
Q: Any individual short or long trades you would want to advise?
A: I will take short positions on the Bank Nifty because I expect the Bank Nifty, which is now ruling at around 9700, to fall to 9400, on the kind of long positions built up specially in UCO Bank, PNB, State Bank of India which are all looking weak.
I may not be so bearish on the stocks like Axis Bank, ICICI Bank and HDFC Bank. Though they look weak and investors can take short positions for a gain of about 3-4% in next couple of days. If investors want to go short on the Bank Nifty, they can look to cover it at around 9500. But the moment the Bank Nifty approaches 9400-9500, it makes a very good entry point.
Q: There is speculation about the CCI order regarding cartelisation in the cement sector. The judgment is to be announced on June 22 and there are expectations of heavy penalty. Would you sell into this run in the cement stocks?
A: The order is most probably going to be issued this week. But I expect the order to accord lesser penalty than the expected 6-8% of turnover. I don’t think that now it will be more than 2-3%.
It is better to move out or book profits with a good run-up in Ambuja Cement, Ultratech, and ACC, among the 38 companies, who will be the worst affected by the CCI order. So it is better to exit, remain light or having no positions in cement stocks for the whole of this week.