SENSEX NIFTY
Mar 20, 2013, 07.35 PM IST | Source: CNBC-TV18

Delay in reforms key reason for market carnage: Tulsian

Indian indices continued its blood bath today with Nifty slipping below the 5700 mark. SP Tulsian of sptulsian.com believes that more than political uncertainty, market is reacting to the delay in the reform process.

Indian indices continued to bleed today with Nifty slipping below the 5700-mark. SP Tulsian of sptulsian.com believes that more than political uncertainty, market is reacting to the delay in the reform process.

"Market is not taking any kind of call on the collapse of the government and elections happening in the near future, but it is more of a complete halt or maybe grinding halt on the reform process; not alone on the diesel price hike, but there are so many issues," Tulsian told CNBC-TV18 today.

He said that the delay in implementation of key reforms in infrastructure, power and coal sectors have miffed the investors.

Below is the verbatim transcript of Tulsian's interview

Q: Do you think this sell off is technical in nature or is there any fundamental trigger, the lingering impact of which is damaging the market right now?

A: It is difficult to give a word to this fall. I would not call it as a technical fall. The technical analyst may say that the supports have broken. However, the carnage has happened even in the frontline stocks and in public sector undertaking (PSU), banks, and cement parcels. I do not think that there are any fresh concerns.

However, considering the market situation one may see this effect of the political uncertainty getting heightened from hereon and that is the reason, which is getting reflected into the stocks.

In fact you do not have respite in any of the sector or stocks. Obviously in this weak market, you are going to see some of the stocks fairing well but still even in those stocks there are no convictions. So, I will be calling it as some fear, which is building up in the mind of the people. I am not taking a call on the midcap carnage, which has resurfaced today and the kind of weakness we have seen, some fear is building up in this market.

Q: There seems to be a complete carnage coming in to the real estate space, the index has lost around 9.5 percent in this week itself. What is plaguing it and what do you think is the way forward now?

A: We have been talking that there is poor off take in most of the projects being undertaken by these companies. The construction work, in Bangalore, Mumbai or National Capital Region (NCR) of high rise apartments is going to take maybe four-five years to complete and generally people have lower interest in such long duration projects. 

However, I think that the problem seems to be more of the liquidity concerns, which is spreading some weakness or fear in other real estate stocks also. The case in point is Housing Development and Infrastructure (HDIL), where the rating agencies have downgraded the company on likely hood of default in the interest payment. So, that has also affected other stocks.

I do not think that the situation is so bad on the ground. There are many companies, which are doing quite well and we have not seen any kind of concerns.

Q: What is it about the political situation that the market is worried about now because even without the Dravida Munnetra Kazhagam (DMK) support the government can stay afloat and there is no real reason to believe that some of the reforms like the diesel price hike etc. will come to an end just because the DMK has withdrawn support. So what is it about politics that’s worrying the market?

A: It is not the worry of the collapse of the government, but as you have rightly said the worry is more on the reforms. We have seen diesel price hike getting deferred for its third tranche, which was due on this 15th.

Now going forward definitely both Samajwadi and Bahujan Samaj Party will be trying to gain the mileage out of any of the reforms move, because they can very well project that as an anti-common people. If you see many of the reforms are pending and biggest is that on the power front. The clearances in respect to the power projects, coal linkages with Coal India and road project etc many such things are pending. Road projects which the finance minister has hinted in his Budget, that it will go through in the next six months are seen to be very difficult.

Coming specifically on the populist measure yesterday, we have seen that Food Security Bill where again the allocation will be increased by about maybe Rs 25,000-30,000 crore which will take food subsidy estimate to Rs 1,25,000 crore as against the estimate of Rs 85,000-Rs 90,000 crore in the Budget. It also seems that probably the government has to dole out more populist measures to keep the other allies happy.

So, it will really be very difficult task. Market is not taking any kind of call on the collapse of the government and elections happening in the near future, but it is more of a complete halt or maybe grinding halt on the reform process, not alone on the diesel price hike, but there are so many issues, which is getting reflected in investors mood.

Fear of correction in the Power Finance Corporation (PFC), Rural Electrification Corporation (REC) also clearly indicates that market is very much disturbed about the halt in power generations reforms. Those reforms are not likely to come through in the  near-term.

Q: Any thoughts on the Steel Authority of India (SAIL) offer for sale (OFS) and you think it will sail through easily?

A: I don't think that this is the right time. I don't understand the need of going for the first tranche of 6 percent dilution that too at such a pathetic valuation. Firstly, there is no appetite at all for the metal stocks and more specifically on the ferrous ones. Even the non-ferrous stocks are taking a beating. So, I don't understand that what is logic or what is the rationale for pushing ahead this OFS. Maybe, the government will be able to mobilise Rs 1,000 crore. I don't think that any kind of whether you talk of the retail investors, domestic institutional investors or maybe the overseas institutional investors will at all be interested in these. I was really stunned to see when they have not shown any kind of interest in National Aluminium Company (Nalco), how they will really be interested in SAIL? So maybe I won't be surprised that tomorrow we may see that government has decided to defer this SAIL OFS. At the current valuations and in the current scenario I don’t see any logic of going ahead with this OFS.

For complete interview watch video

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