Jun 18, 2012, 10.05 AM | Source: CNBC-TV18
Avoid hunting for multi-baggers now in this market, says advises fundamental analyst SP Tulsian.
SP Tulsian (more)
CEO, sptulsian.com | Capital Expertise: Equity - Fundamental ,IPO
For multi-baggers, he says, one needs to have a horizon of three to seven years. Generally, multi-baggers should give a return of 1X to 4X. So you cannot really expect the companies or the stocks to give that kind of return in one or two month's time.
Tulsian gives the example of Exide Industries. "If one plots the price chart of this stock for the last 18 months, you will find the stock hovering in the range of Rs 110-170 and that has given you ample opportunity to make money while buying at lower level of Rs 120-125, selling that at Rs 150-155. In fact, the stock now again is in that range -- though it has gone up by about 13-14 -15 % in the last one month -- it has moved from 115-135," he says.
He says instead of focusing on the multi-bagger, try and look for good quality stocks and look for a profit of 5-10%. "There is no point in hunting for the multi-bagger ideas because people don’t seem to have conviction and time horizon in this market on a longer scale," he explains.
Avoid playing in Options: Safe but very expensive tool
Going by the general philosophy, Tulsian says, investors think options are very safe: Buy the call, pay the premium and forget. "We are in the middle of June series, where two weeks have expired and two weeks remain. So just to give an example, if you take a call on IGL, couple of days back it has moved up from Rs 215-220 to 245. The premium at that point of time has moved to 4% on the calls and even on puts, the premium was 3%. So I don’t think on a stock of Rs 245 if you are buying some Call at Rs 11-12 pre3mium you will be able to make money. Even buying the Put at Rs 240 for Rs 9-10 you can make money," he points out.
Understanding the right implications
"Generally, whenever crude price falls, some stocks start behaving like OMCs and start moving up. But things are not beneficial for those stocks or for those companies. That can just be technical since crude prices have fallen, OMCs maybe having lower under-recoveries. However, if you take a call at the end of the year, none of the OMCs have posted the losses on a net basis. That may happen on a day-to-day basis or on week-on-week basis or quarter-on-quarter basis but ultimately the government is committed to take care that OMC close their bottom-line in black and not in red," Tulsian says.
"Similar is the case with urea price. A couple of days back, we heard that government is going to increase 10% in urea and all the urea stocks started moving up. But that is just a pass-through; no benefits will really be flowing to any of the company. They won’t be able to increase their bottom-line or profitability even by a single rupee. Suppose the urea prices were raised by Rs 500, it will just be a pass-through. The entire benefit will be flown to the government in the form of reduction in the subsidy and nothing extra will get realised to the company. We must understand while taking a call on news that what are the true implications and how really it will be behaving and reflecting on the share price," Tulsian explains.
Avoid high beta, weak stocks for trading
Tulsian says avoid high beta weak stocks for trading like VIP industries, Delta Corp, Praj Industries, Aban Offshore, Lovabale, Jubilant Foodworks. These are some of the companies, which are looking over stretched. "I am not saying that they are weak or they are poor companies or there is something fishy in these companies, but they are already ruling at very hefty valuations," he cautions.
Taking the case of Jubilant Foodworks, Tulsian explains, hypothetically one accepts that the company has good future ahead. Then see the kind of trading patterns, see the kind of volatility in the stock price. If it corrects by Rs 100-150 on a price of Rs 1,100 then: are we in a position to face that kind of volatility? Not really.
That can even be the case with Lovable Lingerie as well. The stock has moved to Rs 400, corrected to Rs 310. Can you face that kind of volatility? The high volatility in these stocks happens because of some element of market making or whatever you may call it, informed buying. Conversely, some of the stocks are high beta but relatively safe.
"So if you take a call on these stocks like Hero MotoCorp, Bajaj Auto, BF Utilities, Bata -- these are not my recommendations to make it clear, these are just some examples -- if you review these stocks you will find them correcting. Maybe Bata has corrected to Rs 750, but again bounced back to Rs 900; maybe Raymond has corrected to Rs 330 and bounced back to Rs 400. Similarly may be IGL, Petronet. My point is that ultimately the fundamental elements remains in this stock. So even if you get stuck you will be able to see your price coming back."
"Be a brave trader; trade less but with high conviction. Be positional trader and if you cannot do all these things be a short-term investor."