SP Tulsian of sptulsian.com, says that continuously, cement has been the most liked sector. In last 45 days, ACC and Ambuja Cements have been moving in a range. Once there is higher differential between the midcap and the large cap cement stocks then you will see the mid capacity cement stocks also participating. So, overall for next one month I think the cement sector is likely to remain the flavor of the market for October series.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Apart from midcap IT, there has been quite a bit participation today in cement and not just the front liners but even the broader market cements stocks. How would you approach this pocket and what kind of an upside do you see on stocks now?
A: Continuously, cement has been the most liked sector. In last 45 days, ACC and Ambuja Cement have been moving in a range. Earlier, Ambuja Cement moved to about Rs 200 and corrected back to Rs 185 in the series and similarly ACC moved to above Rs 1400 and later corrected to Rs 1330. I think this time resistances are likely to be breached due to dull off take of the cement during monsoon season.
Since the monsoon is ending and now the Q2 results expectations have already been factored in things are not that bad. The first month was quite good for the sector due to delayed monsoon. Hopefully, the upward moment will start in the frontline stocks. Once there is higher differential between the midcap and the large cap cement stocks then you will see the mid capacity cement stocks also participating. So, overall for next one month I think the cement sector is likely to remain the flavor of the market for October series.
Q: What is the call on telecom now as reports indicate that Reliance Industries will be very aggressive in the November spectrum auction as well, so that little bit of a relief that we saw on the likes of Bharti when it rallied from Rs 240 to about Rs 265, you guess that the rally is over from hereon and there is downside on the back of this news?
A: I do not think that the fresh buying or the rerating of the sector has happened at any point of time. Though Bharti corrected to Rs 240, but strictly it never fell below Rs 245-246, and huge shorts were created and an upside of Rs 10-15 has happened due to short covering. So, I do not think that at any point of time, the sector got related. It was only a trading band, which has remained for Idea and Bharti.
In the last 3-4 days, Reliance Communication stock is moving up since they have raised their tariff hike by 25%. Going forward, we speculate that Reliance Industries will acquire some telecom company but that has not happened. If RIL participates in spectrum auction, then definitely it will be expensive for other players. If Reliance Industries would not have been there in the fray, then auctions would have happened at a much low price.
It is now presumed that there will be at least 10% more premium for the spectrum which will be acquired by these telecom companies. I think neutral to negative view with slight pessimism continues to remain in both Bharti and Idea stock.
Q: Many brokerages are now bullish on the real estate sector. Is it purely an interest rate play? A recovery in borrowing costs etc – a reduction in borrowing costs or do you think that now there is fundamentally something picking up in the physical market?
A: Better off take is the trigger for the re-rating of the sector. Earlier, people were very apprehensive in booking in the under construction project where delivery period was 4-5 years, but now Mumbai and Bangalore buyers are ready to book with developers who have a good track record and are even willing to take delivery after 4-5 years, so we are seeing better off take.
If that happens and if the builder and the real estate companies are able to continue with their momentum of carrying out the work, then they will be able to reduce the debt as well. HDIL is hopeful to reduce their debt by Rs 700-1,000 crore in this financial year largely on the hopes that the TDR sale will start in the second half.
BMC has cleared close to 100 projects for construction and development in this last couple of months since the appointment of new municipal commissioner. So, overall the acceleration in the project off take has started which is leading the momentum or the resumptions of the development activity.
Q: What is the mood amongst retail investors? The Nifty has rallied to 5700 mark, has the interest in midcaps space has picked up now and which are the stocks or sectors that people are looking to buy into it from the retail side?
A: Retail investors just want to ride on the momentum. On Monday, I advised investors to buy Anantraj Industries they did not like it but on Tuesday when the stock moved up to 20%, everyone wanted to buy the stock. Lot of confusion is prevailing in the mind of investors, they are either desperate or they don't have any time horizon. Riding on momentum is not possible even for a professional trader. I think retail investors are unable to take a pragmatic call or don't understand the philosophy of investment and in the process they are still making losses because they buy at higher level and sell at lower level.
A: Couple of weeks back there was a proposal from IFCI that they are planning to repay Rs 400 crore to the government for redemption of the optional convertible debentures which would have been possible only with the approval of RBI.
But since SEBI has given the permission to the government to go ahead without making any open offer, I think that door is closed. And if you take that fundamental call that Rs 923 crore of the convertible debentures will be converted into the equity shares in favor of the government book value and price earning multiple the stock will have a fair value at 23-24. If the equity conversion happens the stock will again correct to Rs 24. If IFCI is able to win over and repay Rs 400 crore to the government either by persuasion or by the legal process then the share can move to Rs 32-33.
In many stocks we have seen that once the stock sees 15-20 lower circuits, then the stocks starts to pick up and similar is the case with Tulip Telecom. The case in point again is Kemrock Industries, Plethico Pharma. Similar it can happen with Tulip Telecom as you never know when the upper circuit will start, probably that may happen at anywhere between Rs 35-40. So that could be an entry point for the high risk trader, I won't call them as investor.
Q: What is the call on Voltas or Cummins?
A: Voltas has moved to Rs 135 and some correction may happen in October. This kind of euphoria must have happened largely because of the technical positions. I don't expect anything extraordinary will be seen for Q2 numbers. Definitely, Q2 numbers are likely to be better than Q1 but purely on fundamentals and even taking the other factors into consideration one cant justify a price of more than Rs 125-Rs 130. So maybe the technical forces have made it to move so much. Profit booking is advised at this level.
Q: Tomorrow is expiry, for the expiry session, are there any trades that you would want to advice just for the shorter term?
A: It is a foregone conclusion that tomorrow the expiry will happen anywhere between 5650 to 5700. In fact, I see more strength or more index management happening in the Bank Nifty. Bank Nifty is being kept at a level of 11400-11500 largely with the renewed trading positive interest seen in Axis Bank, ICICI Bank, State Bank of India and PNB, four heavyweights in the Bank Nifty. There is no justification for the Bank Nifty to rule so high, so tomorrow definitely both the Bank Nifty will make the index – Bank Nifty to rule higher at 11400-11500 which will also make the Nifty to close to somewhere around 5700.
I am very cautious and careful for the October series because as I have been taking a positive call on the Bank Nifty for September giving a target of 11300 which has been met. Now, I will set the target of may be 10200-10300 for the October series – a correction of close to about 1000 points on the Bank Nifty.