Last Updated : Feb 05, 2013 06:25 PM IST | Source: CNBC-TV18

Market trend upwards; bullish on banking stocks: Tulsian

In an interview to CNBC-TV18, SP Tulsian of gives his expectations on the market week ahead. Tulsian says that despite the current weakness in the market, he is not too worried about it.

In an interview to CNBC-TV18, SP Tulsian of gives his expectations on the market week ahead. Tulsian says that despite the current weakness in the market, he is not too worried about it.

"I am positive on the current series. Infact, whatever corrections we have been witnessing for last three days i.e. Friday, Monday and today, they all seem to be more of a consolidation, except for the bank stocks where the effects of the results," he says.

Also read: Budget 2013: Mkt to consolidate; avoid infra, bet oil says IIFL

However, on the banking stocks too, Tulsian has a positive stance. "I am expecting the banking stocks to bottom out maybe by tomorrow. If Canara Bank posts poor numbers on February 8, then that stock may correct. By and large, the banking stocks will also bottom out maybe by tomorrow.

 Below is the edited transcript of Tulsian's interview to CNBC-TV18.

Q: Market has been a bit sluggish off late.What is your sense? What are people talking about the upside now being capped? Is the market heading lower or it is likely to find support at lower levels like at 5950?

A: Whenever there is weakness, obviously by and large the gloom and doom starts spreading amongst the people. A majority of people are riding the current trend and there is no clear-cut guidance or direction for the market whether this will be going upward or downward.

I am positive on the current series. Infact, whatever corrections we have been witnessing for last three days i.e. Friday, Monday and today, they all seem to be more of a consolidation, except for the bank stocks where the effects of the results. For example in Bank of Baroda (BoB), UCO Bank or the fear of Canara Bank ahead of its results on February 8.

Infact, I am not seeing much weakness. I am not talking of the high beta stocks like JP Associates, Opto Circuits or HDIL, because they continue to have negative perception around them.

However, overall I am not too worried for the market. This maybe a weakness seen till tomorrow but again things will start going upward or maybe at lower level, the valuations will start becoming quite attractive.

I am also expecting the banking stocks to bottom out maybe by tomorrow. There might be a different specific bank case. If Canara Bank posts poor numbers on February 8, then that stock may correct. By and large, the banking stocks will also bottom out maybe by tomorrow.

Q: What have you made of this big knock that we have seen on Jaiprakash (JP) Associates not just today but since the start of the year?

A: There maybe two reasons for this .The management has earlier said that around year end they will be able to conclude the deal for sale of their 4.8 million tonne Gujarat Cement plant. At that time, there was active news that UltraTech Cement was looking to acquire that project, but that did not happen. In the interim, we saw the qualified institutional placement (QIP) being made by the company. It was seen as a very bad QIP per se because if the company is making a distress valuation properly, that indicates the liquidity crunch at the end of the company and that they are prepared to dilute the equity even at lower valuations.

These two disappointments and the anticipation of the positive news ahead of the sale of the cement plant is seeing a lot of trading positions, lot of longs being built-up. And now, they all seem to be exiting. However, even in case of JP Associates, the stock seems to be bottoming out at a level of Rs 70 and it looks to be a good support. If we get to hear anything happening on the 4.8 million tonne cement plant sale front, then that can again revive interest in the stock. However, the prime reason for the correction has be those two news events.

Q: What do you think about Bharat Petroleum Corporation Ltd (BPCL) and Videocon Industries with regards to the latest update of Anadarko? BPCL and Videocon have drilled two new dry wells in Mozambique block.

A: These are two contrary confirmations that have come from the managements. BPCL clearly said that they are not looking to exit from the oil blocks that they are holding in these pockets. Incase of Videocon, there have been all kind of talks, because looking at the debt position of the group or the kind of capex lined up by the group, people have been expecting that they will probably looking for the right valuations to monetise their assets.

Inspite of that, BPCL has seen quite good amount of valuations getting added because of these blocks. However, those kind of reflections are not seen in Videocon Industries. Whenever in the past we have seen the share price of Videocon moving up, the prices have not sustained. So, it is a very unreliable scrip to take a long position based on these newsflows atleast in case of Videocon Industries.

Similar is the case for BPCL. If there is no trigger, probably that next trigger is the oil marketing companies (OMCs) increasing diesel by 45-50 paise. At that time, the revival of trading interest will come in those stocks because these are all the news flows which were already in the public domain. Also there will be the confirmations or reaffirmations of these news at regular intervals.

Q: How would you approach United Spirits now that it is got the Securities and Exchange Board of India (SEBI) approval for a Diageo open offer? Where would the stock be headed?

A: I don’t think there is any attraction in the open offer but the way has been cleared for Diageo to take the control and to complete all the formalities because the open offer is at Rs 1440. Nothing is going to come in the open offer and this is just a statutory compliance by Diageo. They have maintained their view that they are not looking to raise the open offer price and probably they will look to go for the creeping acquisition route.

Maybe in the next two to three years, they will be looking to raise their stake maybe by about 10-15 percent and will remain satisfied with the 27 percent stake as of now. However, maybe eventually the game plan will be different because the kind of foreign institutional investors (FII) holdings which we have seen maybe give some comfort. The calculation has been made that the company is eventually going to Diageo and that will be seen quite positively because there were lot of apprehensions that the deal may not go through because of the competition law or maybe because of the corporate rivalries going on.

However, now all those things are behind this acquisition by Diageo. The company’s Q3 financial performance has been exactly identical on the lines of Q2. This is inspite of the increase in their advertisement and sales promotion expenses by about Rs 50 crore. Sequentially, they spent Rs 222 crore against Rs 178 crore in Q2 and that is inspite of the fact that they have been able to post good operating profits. So, going forward, things are looking quite positive for the United Spirits. If somebody can keep a view of about two to three years, then these can be very good breweries or a good FMCG stock to consider to have in one's portfolio.


Q: There is some news in terms of the news reports which indicate that the company has informed the Supreme Court about its inability to pay the Rs 100 crore fine that was the penalty imposed by the Himachal Pradesh high court for setting up the captive thermal power plant and the fine was imposed for fraudulently bypassing environmental clearances. The company has stated that they do not have the ability to pay that Rs 100 crore fine. Is there any credence to this news? Do you think it would be responsible for dragging the stock lower today?

A: If I specifically plead before the court that they are not in a position  and that it should not be construed as insolvency or bankruptcy or the financial crunch at the companies end, because generally, when one is are making these pleas, either you are looking for some remission or some installment payment from the court just as a relief. For a company that has an enterprise value of anywhere between Rs 40000-50000 crore and saying that they are incapable of producing Rs 100 crore in terms of liquidity or in terms of financial capability is not correct.

If that is having the effect on this weakness, then it is not going to sustain for a very long time. However, in my view, the stock seems to be bottoming out. Now, I don’t think that it can breach or it can go below Rs 70 because we have been expecting some positive bias coming on the cement stocks gradually. Infact, the larger ones like ACC, Ambuja, UltraTech have all either bottomed out or are maybe showing some uptick and once that happens, probably Jaiprakash Associates will also see the same fate in terms of the share having bottomed out and some value buying or it might also see some short covering emerging at those levels.

Q: Do you expect more pain in Jain Irrigation?

A: Considering the results, though the management has said that maybe from Q4 they are expecting improvement in their business, but I am not expecting that to happen. If you see their core business segment, we have seen a drop of about over 9-10 percent in the EBIT margin which fell from 26-27 percent to as low as 16-17 percent. Though they have increased the EBIT margin in industrial segment which constitutes about maybe 20-25 percent of their total turnover, but the EBIT margin in the main segment, has consistently been having an EBIT margin of 25-27 percent for last 18 months.

This fell to as low as 16-17 percent for this quarter. So, even if one has to go by the management commentary that they are confident for Q4, I don’t think that the EBIT margin can get rammed up back to about 25-26 percent. That will keep the pain continuing in Jain Irrigation and I won’t be surprised to see a price of about Rs 62 in this week itself.

Q: What have you made of the past three days movement on the Commercial Engineers and Body Builders (CEBBCO) and what the management had to say?

A: I maintained my view yesterday that I don’t expect the stock to fall below Rs 44-45, though we have seen it hitting the lower circuit. However, there is a problem happening with respect to about 1-1.25 crore shares, which seem to have been pledged with the financiers that are in the non-promoter category, large chunk of that seems to have got sold yesterday and today. Infact on Friday we have not been able to see much of the stocks getting sold and coming on the management call.

Obviously the management will say that they have nothing to do, but I am not prepared to buy that argument. They have been posting good consistent working with an EPS of close to about Rs 2.50 every quarter. So, they should be able to close with an EPS of about Rs 9.5-10 for FY13 executing the orders for Tata Motors, bus body building and all that. So, there are no concerns on the business model as such. So, all these problems seems to be coming to an end and it is likely that it must have got over today. Once that confirmation comes in, we can probably see the stock moving back to about Rs 70 or so in the next couple of months.

Q: What is your expectation from the National Thermal Power Corporation (NTPC) pricing and the floor price perhaps that might be set by the Empowered Group of Ministers (EGoM) today?

A: Because of the high foreign institutional investors' (FII) stake of about 4.5 percent, I don’t think that there will be much appetite from the FIIs. I don’t think that one should be gung-ho on the lines of the National Mineral Development Corporation (NMDC) and Oil India because there the FII holding was 0.5 percent in NMDC and 1.5 percent in Oil India.

Apart from that, the power generation company expectations of about Rs 13 EPS for FY13 makes it to rule at about 11 times. So, if it is sub 10, maybe in the single digit PE multiple, that makes the valuation low at about Rs 140 or so.

Infact, I have indicated earlier also that I am expecting the floor price to set at about Rs 142 or so. Inspite of such a low floor price being set by the government, I don’t expect a lot of response to be seen from the FIIs. LIC and the local banks may probably have to come to the rescue of the issue because the issue is quite big of about Rs 12000-13000 crore. It is not a small amount because Oil India issue was about Rs 3000 crore. So, one could be able to get a good response there but in case of NTPC, I am quite apprehensive that it has to be low floor price and much more response has to come from LIC and the domestic bankers.

First Published on Feb 5, 2013 03:43 pm