Political drama will slow economic reforms: Tulsian

SP Tulsian, sptulsian.com, feels that with the current political development of DMK pulling out of UPA government, definitely the pace of reforms will slow down but it will not come to a grinding halt at this stage. He says that he does not see any immediate threat to the government especially after seeing the statement and behavior of SP, BSP and other parties. 

On telecom front, the 2G trial court summoning Sunil Mittal is seen as a negative sentiment downturn for the stock. However, he feels that there is not much fundamental change to the telecom story yet with the happening of the event.

Below is the edited transcript of his interview to CNBC-TV18.

Q: What is your view on the numbers game on the United Progressive Alliance (UPA) and do you think that it is going to be extremely detrimental to economic reforms in 2013?

A: It is too premature to take a call on economic reform if it will be continued or not. First, one need to see the survival or the stability of the current government whether they can continue or not. I don't see any immediate threat to the current government especially after seeing the statement and behavior of SP, BSP and other parties.

If Lalu Prasad Yadav and Deve Gowda support the government, then government will be able to have the required 271 seats. Even DMK has not been forceful in its statements. They said that they can always reconsider, provided their demands are met in respect to the Sri Lankan issue with regards to Tamilian's and it is likely to be taken.

Considering the statement given by the finance minister and Kamal Nath, it can be understood that the government can consider taking the issue in the Parliament as the session is already on. These things indicate that the political stability may come or may not come to the rescue to the risk of the government or its stability. 

But these moves will definitely delay economic reforms. Issues like clearance of road projects, sugar decontrol, and insurance bills, companies bill pending in Rajya Sabha and land acquisition bill needs to be deliberated and considered in the Parliament session.

So, overall definitely the pace of reforms will slow down but it will not come to a grinding halt at this stage. Things may not look too worried at this stage from the government existence or maybe continuing its term maybe for next eight-ten months or so.

Q: What is your view on the news on Bharti Telecom where the 2G trial court has summoned Sunil Bharti Mittal?

A: Name of Sunil Bharti Mittal being added to the 2G trial will definately be seen as a negative. Maybe the extreme steps can all be initiated by the judicial process and if that happens that will definitely be seen quite negative and bad for the stock.

Q: We are seeing a knee-jerk reaction in the stock, how would you approach the stock post this event?

A: I don't think things will evaporate in next couple of days. I think the stock will correct to about Rs 280-282 as it is still on the downside. I won't take this as a knee jerk reaction which will end today or tomorrow. It will have a lingering effect on the stock price in the near term.

Q: Would there be any fundamental impact on the telecom space or do you think that it would just be a sentimental reaction considering such a big name is now a co-accused or named as a co-accused?

A: Had there been any fundamental impact then the stock would have corrected to Rs 250-260. These are sentimental impacts and they do have a toll on the share price maybe to a limited extent. I don't think that even the corporate governance issue will be taken so seriously or so loosely by the people but all the news flow has its reaction and reflection on the share price and that is the reason it will not have much. 

Q: Your thoughts in terms of any repercussions and any longer-term ramifications for Bharti Airtel and would it be a buying opportunity at Rs 289?

A: It is difficult to take a call because I will wait till the level of Rs 280-282. One has to see the technical position because I don't see any more further damage on news front because if the hearing happens on April 11, then the major negatives must have got factored in into the price. So a can be reviewed at those levels and I won't hesitate to go long at Rs 280 or so.

Q: What is your view on Manappuram General Finance and what you made of the conference call highlights which we have been talking about?

A: The amount of Rs Rs 250 crore underrecovery maybe is profits or cash profits, which the company makes for six months as their performance has been falling in these last two quarters. In June quarter, they had cash profit or their bottom line to the extent of Rs 175 crore. It is premature to take a call, that the value of the gold will fall further if there is any recovery in gold in next 30 days. Then the losses or the underrecovery, which has been slated to be at Rs 250 crore can get recouped to a great extent.

I am not too negative on the stock if one has an outlook of 3-6 months. Today, it is frozen on the lower circuit and this could be used as an entry point. A cautious investor can buy the stock tomorrow at Rs 26, with a target of three months.

Q: The sugar space corrected quite rapidly. We understand that the food bill at least for now will be differed and given the fact that there is so much political uncertainty you don't know when it could be taken up as well. How would you approach this sector now and what would you do with individual stocks?

A: Except for levy scraping, nothing is seen attractive in the whole sugar sector. I have a cautious stand. Now, since government has other priorities to save their existence, it is not a priority for them to go ahead and partially de-control the sugar sector. So, it has gone on the back foot and nothing is going to heard for the next 10 days and till then the stocks will witness profit booking and correction.

Q: What would you watch for in terms of key developments on this resolution in the next couple of days and what sort of impact do you think it could have on the markets? Do you think that there could be a negative reaction even more than what we have seen today or do you think that it is done and dusted today?

A: Last one hour weakness can be attribute to fresh concern on Bharti Airtel. On political front, I don't expect to see any more weakness. I don't think that things can really worsen from hereon. People will have some kind of uncertainty whether it will go through, it will happen or not and that can keep the index or the benchmark slightly negative.

I think things can improve to a great extent because we saw huge shorts having created. Virtually, all long positions got liquidated in today’s carnage. So, this can be a good entry point for the traders to enter and I don’t see further weakness.

Q: Is it a good point for traders to enter Bharti Airtel?

A: For Bharti, I have a target of Rs 280-282. One can keep a weak stance on the stock till tomorrow and then can wait to take a call on the stock.

Q: On infrastructure and capital goods space. Today, Bharat Heavy Electricals (BHEL) is down around 5 percent, IVRCL around 8 percent. What could be the reason for the sell-off and now with the monetary policy behind us, no great scope for further rate cuts going ahead at least given what the tone of the Reserve Bank of India (RBI) was, how do you approach this space?

A: I don't think that rate cut was a big respite seen for the infrastructure and capital goods sector. The transmission of the repo rate cut may happen in the first week of April as banks have indicated that there is a time lag. Anyway the market was not expecting a rate cut beyond 25 bps and that was seen as a big sucker for infrastructure sector. Lack of initiative on the government front could be as the reason for weakness in all the stocks.

Q: From a base where do you see Manappuram because from the concall it can be understood that the company could post a loss of Rs 60 crore in Q4 versus its earlier guidance of a profit of Rs 80 crore because of the way gold prices are declining. So, where do you see the stock stabilise before you buy it?

A: As mentioned earlier, I will take the current development on the positive note. I think the stock is attractive even at current level. One can see the price of Rs 26 tomorrow and could start buying at those levels.