SP Tulsian maintains cautious outlook on IT stocks

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SP Tulsian maintains cautious outlook on IT stocks

SP Tulsian of sptulsian.com, in an exclusive interview with CNBC-TV18's Latha Venkatesh, gave his views on infrastructure, capital goods and IT stocks.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets BHEL BSE | NSE 29/05/12 Are Mutual Funds betting on BHEL? Other Stocks in this news Siemens | Thermax | ABB | Cummins India | Tata Consultancy Services | HCL Technologies | Infosys | Infrastructure Development Finance Company | Educomp Solutions | Allied Digital Services |

SP Tulsian of sptulsian.com, in an exclusive interview with CNBC-TV18's Latha Venkatesh, gave his views on infrastructure, capital goods and IT stocks.

Below is the edited transcript of the interview. Also watch the accompanying videos.

Q: Have any of the sectors that you track very closely like infrastructure which have been beaten black and blue come to a level of buying or do you think the market itself is not in buying mood?

A: I prefer the capital goods sector because I am tracking infrastructure very closely and one has to really wait for the interest rates signals to get peaked out. Once we have that signal, then probably there will be renewed interest coming in all these stocks with a very fast pace.

As far as the capital goods sector is concerned, when the share price of ABB , BHEL , Siemens , Thermax , Cummins India give confidence, then probably all the stocks bottom out. In spite of that there is no buying mood in the market because the kind of carnage or the kind of losses the investors and traders have really suffered. No one is in a mood to come forward and buy. Looking at these companies, I would make a small buy in this segment at this stage.

Q: We can't get our eyes off the screen especially for Infosys which is down around 6%. What are you making of the carnage that we are seeing in the entire IT sector at this point?

A: If we are accepting that Euro zone is a big problem and that is getting spread to the US as well, then the IT sector will not be having comfort going forward because clarity still lacks there. When you make a relative comparison, IT sector vis-à-vis other sectors, you find much comfort in other sectors and stocks because if you are going to see de-growth in the IT sector and other sectors or stocks in that space, they are already ruling at a PE multiple of 20 plus.

Stocks like Infosys , TCS , HCL Technology have been ruling at a PE multiple of 18 to 20, but I am not referring to them now. They have come down to maybe about a PE multiple of 14-15 but still when you take a relative performance call, other stocks look quite attractive and that's a reason I maintain a cautious outlook on this sector for a while.

Q: The caller has purchased 500 IDFC shares at Rs 185, what should he do?

A: The caller has to take a long term view on this because I presume that he is an investor and not a trader. If he would have been a trader, then he would have applied the stop losses and would not have remained into the stock. Considering the activity or the business profile of the company, I am very positive on this stock.

If you see the price of the stock falling in double digit, then one can really be brave enough. This applies to the existing investors as well because that's the right level where one can contemplate averaging into the stock since the caller has bought IDFC at about Rs 185.

If the caller buys some more quantity at Rs 95 or at Rs 100, then cost can come down to about Rs 140-145. However, if somebody can really keep a view of 12 months on the stock, then this is a stock to keep in ones portfolio for long term, maybe for four-five-ten years. Even if he keeps a view of one year, then he can expect a return of about 25% from here.

Q: What can be done for a purchase of 100 Educomp shares at Rs 690 since the share is dipping further?

A: It is very painful to hold such type of stocks. The stock had a monthly high of close to about Rs 395 to 400 and you see the stock getting corrected by 40-45% in one month. Set aside this IT raid, which we have seen yesterday. If you see the price pattern of the stock for last one week, there has been on a continuous fall. It was indicating that something is not as per the order either in the company or in the stock price and that was indicating the weakness in the stock.

With IT raids, will the financials reported by Allied Digital be correct? So once you lose the confidence on the corporate governance or integrity or fairness of the financial, then there is no point (in staying invested).

It is painful to book a loss of 65-70% but one has to quit at some point of time. I don't think there is any point in remaining invested and looking for a recovery in the stock. Even if you take a shift in some other sector or some other stocks, then that can give you an opportunity to at least recoup your part of the losses. So I would advice to exit from the stock even at this level.

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