Jan 14, 2013 06:51 PM IST | Source: CNBC-TV18

Optimistic on GAAR deferral; buy HDIL, PSU banks: Tulsian

In an interview to CNBC-TV18, SP Tulsian of said that the deferral of GAAR to 2016 is a positive move. RBI is likely to cut rates and the PSU banking stocks that are likely to be affected by the rate cut have started moving up already.

After the Indian government deferred the general anti avoidance rule (GAAR) today, the Indian market soared with the Nifty gaining 72 points to close at 6024 and the Sensex 243 points to close at 19906. The market did not show any major movement after December inflation slowed down to 7.18 percent versus 7.24 percent in November, raising hope for an interest rate reduction by the Reserve Bank of India (RBI) in its January policy meet.

In an interview to CNBC-TV18, SP Tulsian of said that the deferral of GAAR to 2016 is a positive move. RBI is likely to cut rates and the PSU banking stocks that are likely to be affected by the rate cut have started moving up already.

Further Tulsian is bullish on HDIL and Unitech, as both these stocks look good, in terms of the fundamentals as well as the technical behaviour in the F&O space. As RBI is likely to cut rates larger PSU bank stocks like State Bank of India (SBI), Punjab national bank (PNB), Bank of Baroda, Canara Bank, Bank of India are moving up and may see a further upside.

Below is an edited transcript of Tulsian's interview on CNBC-TV18

Q: The market did not react to the inflation number too much, It is only when the details on GAAR came out and the deferral of the implementation that the market actually saw a bit of a momentum on the upside – according to you how much of a relief does it come as this deferral till 2016?

A: This is a very positive move and very much on the expected line that the GAAR will get deferred by a couple of years. If one sees it probably has to coincide this with Budget also of 2014. When the Budget will get presented, that will happen only in the month of June or July so, I don’t think this was possible for any finance minister to make an announcements that the GAAR will be applicable from 2015. Maybe circumstances have complied the government to make it from 2016 which has seen very positive.

We have not seen any kind of relief coming in after the inflation number but may have taken one hour or so for the market to digest and adjust. On the hopes of the rate cut we are seeing that the rate cuts seems to be most likely. We are seeing all the rate sensitive stocks have started moving up. If one sees the PSU banking stocks as huge beneficiary of this expected rate cut along with the rate sensitive’s more especially in the real estate sector. Many of the stocks have started moving up, maybe the combine effect of that has come after the GAAR announcements by the finance minister.

Q: DLF is 6.5 percent up move. There is a brokerage upgrade but we have seen several of that come and go – fundamentally how much do you think DLF deserves in terms of a stock movement?

A: Yes, the research reports come and go. It is very important to see these prices sustaining. We have not seen prices sustaining for DLF. We have been seeing a very good trend emerging into Unitech, which has been continuously going up, forming higher top higher bottom. The stock has seen under accumulation and that kind of comfort is not coming in from DLF.

They have gone ahead and the debt reduction process has started by the company. They have exited from their Mumbai property, they have exited from their Aman Resorts except the Lodi Hotel and that is going to get their debt burden reduced. Maybe by March, they should be able to reduce it by Rs 6,000 to Rs 7,000 crore because some of the projects that have been launched by them in Gurgaon will also give them good liquidity which will not get reflected into their financial performance but will improve their cash flow by a good margin.

Overall, things are positive on that front but is not happening in pace as expected. I will keep a cautious stance. If one really wants to take a view on some of the real estate stocks – two stocks from the Futures and Options (F&O) space are HDIL and Unitech. Both the stocks are looking quite good in terms of the fundamentals as well as the technical behaviour.


Q: What is your view with regards to Tata Consultancy Services (TCS)?

A: Broadly on the expected lines, I don’t think the market will disappoint. Now the difference between TCS and Infosys has really shrunk and is justified because the kind of premium TCS was enjoying should continue. If you see the price-to-earnings (PE) multiple difference, it is only 100-150 basis points.

Infosys has also moved to a PE multiple of close to 15 plus on FY14 while TCS is ruling at a PE multiple of 16 plus. So, Q3 numbers will be more on lines with Q2. We won’t be seeing the sequential growth having posted by the Infosys but that will not be seen negative by the market because they are all very much on the expected lines.

The company should be able to post earnings per share (EPS) of close to Rs 71-72 for FY13 which would be seen positive. Taking all this into consideration, Rs 1360-1375 may seem to be a resistance for the TCS post numbers. So if Infosys continues to rule at the same level where it is ruling now, then the differential between both of them has to increase and in that case TCS may increase. However, Infosys may correct from hereon maybe by Rs 40-45 to maintain the gap between TCS and Infosys.

Q: What is your view on Muthoot Finance after hearing the management today? Sudarshan pointed that the run is done on this one technically, but fundamentally do you think there is more steam on the upside?

A: There are two things; first if you compare their Q3 numbers with Q2 the bottomline and topline are almost flat. They have posted a profit after tax (PAT) of Rs 270 crore for Q3 which was at Rs 268 crore for Q2. So more or less it is all in line. If you go by the price-to-earnings (PE) multiple, it is ruling at a PE multiple of close to eight times with a price to book of 2.2.

If I make a comparative analysis with Manappuram Finance, Manappuram is ruling at a price to book of maybe 1.25-1.3 and is ruling at a PE multiple of seven. So I am not disappointed with their Q3 numbers, but they have been more or less in line or maybe flat on the working that they have posted for Q2. Maybe in the near-term I don’t see much upside in Muthoot Finance because as the PE multiple of eight times and price to book of 2.2-2.5 is not looking cheap.

People will now be waiting for Manappuram because they have disappointed with their Q2 numbers and if they show some signs of improvement and are in line with their Q1 performance and post those kind of numbers in Q3, then an upside will be there. So, I will keep a pause on Muthoot Finance but will be keenly watching the results of Manappuram. I won’t be entering into Manappuram now at these levels but will be keenly watching for their Q3 numbers.


Q: Development Credit Bank (DCB) comes out with its numbers tomorrow, the stock is up around 3 odd percent ahead of its numbers. It has always outperformed or seen a turnaround from the loss it made at one point in time to profitability, better net interest margins (NIMs) and more improved asset quality. Any call on DCB that you would like to take?

A: I don’t think there is much excitement on that. Profit after tax (PAT) is expected to be close to Rs 25 crore or so. With regards to asset quality, I don’t think the net non-performing assets (NPAs) are likely to increase. I think that was at around 0.7 percent for Q2 and is likely to remain at the same level. Much improvement is unlikely to happen and if you see the share price behaviour for the last one year, it has been moving in the range of Rs 45-50.

Even if it corrects to Rs 40-41-42, it quickly comes back within that range and whenever it moves to Rs 52-53, it is unable to breach the level of Rs 53 also. So the performance will be flat with a bottom-line of close to Rs 25 crore with asset quality of net NPA remaining at 0.7-0.75 percent. The market which has earlier been seen as a takeover candidate may now be acquired by HDFC Bank because they are very close to Aga Khan family, I don’t think that even that event is likely to happen in the near-term. So, the stock is likely to continue in the tight range, maybe even after the numbers. Even if the stock disappoints it will correct to Rs 48 and if it cheers, will not move beyond Rs 52-52.50.


Q: How much of the rate cut has already been priced in to our markets and if there is still some more to go within individual stocks in the run up to the policy, which stocks would you play for right now?

A: I think more or less they all have factored in for the private sector bank and the major beneficiary seen of this rate cut will be the larger PSU banks. If one has higher deposit, higher advances, you will be having the advantage of rate cut. In that space if you want to have the five PSU banks, they are, SBI, PNB, Bank of Baroda, Canara Bank, Bank of India and maybe stocks like Central Bank of India because they are the top five, top six banks.

One can still expect some upside coming in to those stocks. The private sector banks will all be directed by performance which they are likely to post. Tomorrow there are three banks lined up, DCB, South Indian Bank and Axis bank. Day after tomorrow we have the results of Yes Bank followed by ICICI bank. So they will be directed more by their results and I am expecting all the banks to post good numbers, Axis Bank should be able to post earnings per share (EPS) of close to 28.50. Yes Bank may give an EPS of close to Rs 9. Overall, the weakness is not seen in the banking stocks. More especially if you want to catch or play on the upside that has to be on the larger PSU banks.

Q: What is your view on Oil and Natural Gas Corporation (ONGC)? A couple of days ago CLSA had downgraded the stock stating that most of the fuel price rally is already baked into many of these names but this one is up 4.5 percent today. How would you read it?

A: The stock has been moving up on the hopes that the government will be able to take a decision to increase the diesel prices and maybe some LPG price hike also. Whether you talk of the Oil Minister or Finance Minister or Prime Minister or the Planning Commission, everyone is agreeing that the price increase is inevitable and needs to happen. But the moment they collectively sit for doing it, I don’t think that political will is seeing that.

I am not ruling out that the diesel price hike won’t happen but the question is that when will it happen and to what extent because the staggered hike of Rs 1 per litre every month is just not possible as you cannot have the consistency of having that leisure of increasing Rs 1 per month. Maybe this will be in one go and the upstream company’s burden in sharing this under-recovery will get reduced.

I hold a different view because government will be interested in reducing their contribution and are going to keep these upstream companies sharing the same burden maybe to an extent of 38.5 percent which they are now asking them. I am not holding a very positive view, maybe the stock can move to about Rs 310-315 but it will keep correcting because the same kind of behavior we have seen on Thursday also when stock moved pass Rs 300 then again corrected back to about Rs 290 or so. I don’t think that trader will really be able to make money because this volatility will keep scaring them both on the long side as well as on the short side. So, I am not very positive on ONGC price moving beyond a point.

Q: What about the Anil Dhirubhai Ambani (ADAG) Group. Today, we saw Reliance Communications, Reliance Capital, all up about 4-5 odd percent, anything there that you would want to put your foot in?

A: I have been keeping a positive view on Reliance Capital and Reliance Infrastructure for whole of the January series. I am not too comfortable with Reliance Communications though, it has been moving up and maybe in line with, if you see the relative performance with the other telecom stocks like Bharti and Idea, that stock has not really performed and I have never been bullish on Reliance Power. So maybe Reliance Capital and Reliance Infrastructure can still be looked into for this January series.

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