Operator driven stocks like Clarus Fin boil Tulsian's blood

He also talks about the IPO market where operators have become less influential but in some stocks they still have the power to create stress.

Below is a verbatim transcript of his interview with CNBC-TV18’s Udayan Mukherjee. Watch the accompanying videos for more.

Q: On IPO’s, Inventure Growth was Rs 240 last week.

A: It is very unfortunate. I happened to hear someone saying that newly listed stocks move up which gives us a lot of opportunities. Just to recall, three days back at 2:15 on maybe Wednesday or Thursday - it was at a 52 week high at Rs 255. Yesterday, it was at Rs 170 or 175. Can you imagine the pain which an investor would have suffered? At that time that confident investor was saying – ‘Nahi main toh nikal jaungaa top pe’ because I asked him - why are you playing with fire?

We have one week or maximum one month history and then the share corrects by 90-95% from its peak and it is 80-85% from its issue price. Yet there are some people who are advocating for that. You all may not like what I have to say but everything is grown from this land of Ahmedabad. It’s very sad. That is the cause of killing this market which is one of the negative factors.

I recommend a lot of midcap and other stocks. I have a negative list of 250 stocks because I have news that operators are involved. We all know the names of the operators - Yeh share 10 din mein double ho jayega, yeh share 1 mahine mein 50% badh jayega, all operator driven stocks and I refrain from recommending those stocks. If you have that mindset that you want to make quick bucks - maybe 50-30% in one week or one month - you are going to lose money in this market.

Q: Can you give us names of 10-12 stocks? Some were completely torn apart last week where you see this kind of activity where stocks were falling because of those reasons?

A: Let me first warn these stocks where they are going to see this kind of activity. I will give you the names of those which are going to correct in the next six months or so, which will get eroded by maybe 60-70-80%. First is Gravita, second is Shree Mahindra Exports, third is Aanjaneya Lifecare, fourth is Inventure, in fact you can pick up many.

For example, Clarus Finance . Those who have seen my recommendations, I warned that the stock was ruling at Rs 250 last week and today it is Rs 120. Take it from me, it is a pure operator driven stock. If you want me to give a valuation call it is not worth more than Rs 4-5. It is a pure long-term capital gain making exercises in which people are involved. They convert your black money by charging 4-5% so this share can fall to Rs 50-60 but again it will bounce back to Rs 300 on or before March 31, 2012.

This needs an investigation and enquiry by the Stock Exchanges, by the Income Tax Department and by the Ministry of Corporate Affairs. Another is Vertex Securities. Whenever I see these names my blood starts boiling. Clarus Finance’s stock has corrected by more than 60% in the last one week. That is not the end to the story when I tell you that this stock is not worth more than Rs 5, today its ruling at Rs 120.

I don't know, maybe it will correct to Rs 75 but you are going to see the price of Rs 300 in the next one month or so. I am not giving you a tip to trade in this stock that buy at Rs 75 and sell at Rs 300 because these are long-term capital gain mechanisms. Promoter’s stake is 4%.

You might say - how is it that you can pull up the price, because 99.99% but 100.3% is held by the promoters or the so called group. They make money in auctions, they get your share to get auctioned, you will not get a share at the auction, so there are all sorts of gimmicks. I can give you a long list.

I should have prepared a list and brought that list here. But just check the last year's IPO and see their price movement. The modus operandi is that they enter into a deal with the operator. Suppose if any promoter wants to bring out an issue of his company at Rs 20, a merchant banker tells him that you price it at Rs 40. They pull up the price to Rs 80 and they dump the share at those levels, 60-70-80% of the IPO size.

All these IPO’s are in the range of Rs 40-50 crore and they make money of Rs 75-80 crore and then move out. Midfield Industries, Tulsi Extrusions, there are so many stocks. I can’t even recall. You all can compile the list of shares which have all got corrected in this last one year by about 60-70-80%.

Q: You didn’t mention KS Oils?

A: KS Oils is in that operator list category. KS Oil is in that operator category. Names like KS Oils, Karuturi Global and IVRCL Infra. I am not saying that these companies don’t have a business model. There is a saying - One rotten fruit can spoil the whole basket. Operators identify those kinds of stocks. I can’t give the names of the operator here.

So we get attracted towards those stocks saying that we are going to make quick money or big money in those stocks because the operator - isko jo hai ek mahine main double kar dega. There are no fundamentals to justify the price of Rs 30-35 of KS Oils at that point of time and that is why it has corrected. Now people are asking - can I buy KS Oils at Rs 8?

It’s like after you have caught a chain snatcher you say - can I employ him in my office now because he is available to me at half the salary which a normal person is asking. Stop this mindset, stop asking or taking calls on these stocks where we have already tested the behavior and the price pattern of these stocks.

Q: From a two-year horizon, should investors be looking at buying bombed out real estate stocks? What would you tell him?

A: Yes, you can but you have to be very choosy. Some of the parameters are the companies must have presence in Mumbai or NCR region. Number two, whichever company you choose must be debt free. Number three, the entire land stock which they hold with them must be in their physical possession plus 100% paid. If it meets these three criteria’s then definitely you should go ahead. Also, the marketcap vis-à-vis net present value.

If you are getting the marketcap of any company to net present value at 20%, you will be able to identify maybe about eight to 10 such companies. Maybe it could be the pseudo realty if not pure realty play, then go for such stocks because you are going to have good earnings or maybe returns, provided you have a time horizon of two-three years.

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