Jan 05, 2017 10:48 PM IST | Source: CNBC-TV18

Here is why Tulsian bets on bank, metal stocks

In an interview with CNBC-TV18, SP Tulsian of, said he is positive on banks especially after seeing Bank Nifty levels at 18000. He also maintained a positive stance on natural resources stocks.

In an interview with CNBC-TV18, SP Tulsian of, said he is positive on banks especially after seeing Bank Nifty levels at 18000. He maintained a positive stance on natural resources stocks like NMDC, MOIL, Sandur Manganese and Iron Ores, Sarda Energy, Prakash Industries, Sunflag Iron and Steel Company, Indian Metals and Ferro Alloys.

Below is the transcript of SP Tulsian’s interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.

Anuj: Wanted your thoughts on this metal rally, because we had overnight as well the dollar falling and globally commodities rallying and one of your favourite stocks, of course, JSW Steel has lead the rally today. Do you see more gains for names like JSW Steel, Jindal Steel and Vedanta?

A: Firstly, we need to understand or we must understand the implication on each metal company because the moment we call metal, obviously this is a general statement. If I just give a call, because first let me take you into the background that I have been keeping my positive stance on the natural resources stocks like NMDC, MOIL, Sandur Manganese and Iron Ores, Sarda Energy, Prakash Industries, Sunflag Iron and Steel Company, India Metal and Ferro Alloys for the simple reason that they are all into exploration of iron ore, manganese, manganese chrome, manganese ore, ferro alloys, all kind of things. And actually, if you really take a call on JSW Steel, we have taken a call on all these natural resources company and if you see the price increase having effected practically by all the companies by October 1, they have been to the extent of anywhere between 45 percent to 60 percent. So, obviously all these companies are going to show the excellent Q3 numbers where everyone is crying on the demonetisation. In fact, Q3 will be taking a big hit. Take it from me, just an example, NMDC and MOIL will be posting much better number than Q1 and Q2. So, that neutralises the fear of demonetisation which whole market is grappling with. That is number one.

Number two, if you come on the companies like JSW Steel, they are all the user of the, whether you call iron ore or manganese ore or maybe ferro chrome applies for the stainless steel, so definitely the margin pressure is seen there. And actually that has seen reflected partly into the Q2 also because as I said, the rising trend has started from maybe end of September or middle of September. So, it will be incorrect to say that the steel makers like Jindal Steel and Power, JSW Steel, steel authority, they will stand to gain the way it will be enjoyed by this natural resources company, number one.

Number two, if you see the import parity prices. In fact, we derive the value domestic prices of all these companies based on the import parity prices. And if the rupee is weakening or the dollar is strengthening then that is an added advantage to these natural resources company. So, I have always categorically said that I am not negative on JSW Steel, but I am definitely keeping a neutral to negative stance on Jindal Steel and Power and Steel Authority of India (SAIL). For the reasons maybe like huge debt, lower margins and all sort of things, I will not give a general statement of giving a positive bias on the metal companies, but yes, the companies which are stated in the natural resources space, they have tremendous or huge potential seen even going forward at least for the next two quarters because if you see the global supply, I do not think that global supply from Australia and all that can even get restored for the next couple of quarters also. So, this is the caveat with which I am giving the positive call on the metal companies.

Anuj: What are your thoughts on Yes Bank, one of your favourite stocks? It is the top Bank Nifty gainer right now; do you see the stock going back to its previous highs post the QIP fiasco? 

A: We have been maintaining the positive bias for whole of these January series on all the banks, public sector and private sector and more specially after seeing all this, whether you take the level of Bank Nifty at 18,000 or the individual rate on ICICI Bank, Yes Bank, IndusInd Bank, and amongst the PSU Bank State Bank of India (SBI), Punjab National Bank (PNB), on all we have our positive view. 

Now, coming on the levels whether Yes Bank can surpass the old previous high what we have seen ahead of the QIP which they have called off is possible but it is very difficult to give the timeline. If you see the Q3 numbers, which will be seen from these private sector banks, again, I don’t think that any kind of disappointment will be seen because the kind of noises which has been created on the expected performance of these all financial companies, banks, NBFCs, we will all get belied because if you see the third installment of the advance tax having paid by these banks has also given a lot of comfort. 

So, yes, because of flow of results, majority of them will be seen in this series itself because many of them have already announced the dates, maybe ICICI Bank is only announcing the results on January 31 which will be after the expiry of this January series. So, keeping a positive stance on all the banks amongst this private sector banks and even in this bigger one in the PSU bank space as well.

Anuj: You have tracked some of these fertiliser stocks for more than two decades now. Every time, ahead of Budget, we see some move and the stocks rally and then that rally fizzles out. Do you get a sense that it could be different this time?

A: Every time, this is seen as an irrational move and same thing is happening now as well. Now, let me just quickly explain you for this higher seeking of fertiliser subsidy, that is just a request. All departments, all the ministries, they put their requisition to the ministry which never gets accepted to the full extent, number one. Number two, if you see the crude, we are loosely talking that the fertiliser is now a decontrolled segment for the complex fertiliser. It is not like that. The reserve prices have all been set and the government and all is paying the subsidy and all kind of things because of the crude having risen. Obviously, the NPK, urea, potash and potassium, all three have seen the rising international prices which will definitely be increasing he subsidy burden. And if you see that, in fact, in my view, against the usual subsidy of Rs 75,000 crore, the demand of Rs 15,000 crore is required to be met minimum by the Finance Ministry. Suppose it is not given by the Finance Ministry to that extent, then that will be seen definitely a negative.

Come on the urea again. Because of the urea pricing the working capital cycle has started increasing the burden on all these urea makers. You have seen Tata Chemical when they have exited from the urea plant, from the UP based Jagdishpur or maybe Shahjahanpur, they have kept the complex fertiliser with them, but are exiting from the urea making. Similar is the case with 2-3 other urea makers also that they want to exit, but there are no buyers seen on that. So, this is again an irrational move which we have seen at least for the last one decade ahead of the Budget. And all that rally gets fizzled out once the Budget is out of the fertiliser stocks.

Anuj: You were bullish on Zee Entertainment. This is one stock which actually suffered quite a bit post demonetisation because companies told us that the ad spends are being cut. Do you think the stock overreacted and from here do you see more rally. It is still 20 percent off its recent highs? 

A: Demonetisation effect has to be considered in reference to the share price correction also. When the stock moved past post Q2 numbers, which were not seen so exciting which made the stock to move at Rs 550 or maybe Rs 540, at that point I said that exit at that time there was no demonetisation. So, sometimes the extremes always happens, maybe either on the results or maybe with the demonetisation. 

Exactly having corrected or maybe for last couple of weeks we have been giving a call that the stock seems to have bottomed out along with cement, NBFCs, auto ancillary which have been our theme, sugar for last maybe 45 days or so, so, this was also on our buying list and I think now this really looks an attractive buy and won’t be surprised to see the share crossing to a level of Rs 500 maybe ahead of the announcements of Q3 numbers by the company.

Sonia: I wanted your thoughts on Force Motors because this is one stock that you have been bullish on for a very long time. Today, the stock is up almost 11 percent. You see it get back to its 52-week highs and perhaps even conquer that?

A: We gave a buy call on the stock about three years back when it was Rs 500. Now, if you see the pricing pattern, I do not think that now, this has become the retail investor stock because showing this kind of momentum, 10-11 percent, I do not see any reason because if you see the monthly sales having announced by the company yesterday and maybe the plant closure, they have kept for 5-6 days because of the lower offtake, we will be seeing some kind of impact coming in. And if you see now, the stock having corrected to as low as Rs 3,700 and moving to as high as Rs 4,800 within a span of 3-4 months, I do not think that any retail investor can participate. And that too, when you have so many ideas available. So, this has become a separate league and operated by a separate club. So, I am not taking a positive call on the stock at this moment purely because of the volatility. If this would have been ruling at around Rs 37,00-3,800, that seems to be a entry level and Rs 4,500 plus seems to be the profit booking level.

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