Advise profit-booking for non-F&O PSU banks: SP Tulsian

In an interview with CNBC-TV18, SP Tulsian of sptulsian.com recommends profit-booking for anyone holding non-F&O PSU bank stocks at current levels. Also, he gives his views on HDFC Standard Life and Max Life Insurance merger and sugar stocks.Below is the verbatim transcript of SP Tulsian's interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.Anuj: First a word on the deal of the day HDFC and Max and how would you approach both these names now?A: If you see that yes what is happening in the life insurance business, I am seeing the same thing what we have seen maybe 4 or 5 years back happening in the telecom space. Now you see there are lot many players in this life insurance or maybe in the insurance business, but they have all been struggling for last 3 or 4 years, so the big consolidation has to happen and in my view maybe 4 or 5 significant players will only remain and if you really this HDFC and Max which will get consolidated with the broad contours will be known this evening at 5.15-5.30, so this is bound to happen. Now we have to keep an eye on the other companies also, so many public sector banks (PSU) banks are in this space, so many financial companies are in this space like Kotak, like Edelweiss or maybe the unrelated companies like Exide and all sort of things. So yes consolidation is a very big move, but if you really take the broad contours of the expected consolidation and the kind of benefits which we will be seeing coming into the shareholders of Max pursuant to the merger of HDFC Life Insurance business, I honestly don’t see any more upside now, so I will rather wait because there are lot many ambiguities we need to understand and we need to know that how the consolidation will happen, because if you see the press release issued by both the companies it is also ambiguous which says that consolidations, scheme of arrangement and we will try to consolidate and merge all sort of things. It is very necessary and very essential to understand the broad contours and then only take a call and suppose if I would have been an investor in the Max Financial, I won’t be hesitant in selling the share maybe on a rise of about 15-18 percent. In fact, morning it gave a good opportunity to exit because I am not keeping a very positive stance on this space for next couple of years as well till this consolidation will happen.Sonia: I wanted to ask you about the sugar stocks because post the news flow of the export duty on sugar a lot of the stocks have corrected quite a bit today about 5-7 percent. For someone who has made money in the sugar names, what should you be doing now?A: Profit booking is an independent move and one if you are taking a fundamental call I don’t think it is foolish to connect the profit booking with this news flow of 20 percent export duty having imposed by the government, because if you really see the situation now and I am giving you the latest rate which is prevailing for the while sugar it is about USD 545 per tonne and even raw has raise to a level of 20.20 cents per pound, so that’s translate into a price of about Rs 36 per kg for white and maybe about Rs 30 per kg for raw. So definitely there may be some incentive for the Maharashtra based and Tamil Nadu based sugar companies, because in Tamil Nadu and Maharashtra the sugar is ruling at a price of Rs 34 while in UP the sugar is ruling at a price of Rs 36 per kg. This move is just to dissuade the mills to make any kind of exports, so this is just a wall which has been created that there will be no import, that there will be no exports.I don’t think that a single grain of sugar will go out of the country. Otherwise, also this would not have gone because for an arbitrage of about Rs 1,500 it is not feasible to meet your freight and insurance and other cost in any miller who is having presence in Maharashtra, Karnataka or Tamil Nadu from where the exports can only be made. They will be really very happy to sell in the domestic because the export hassles and all those things will not be there and same thing for merchant exports I don’t think that with a gap of about Rs 1,500 per tonne you have any kind of incentive.Now take the case of 2011 when the white sugar had touched the high of USD 750 per tonne. Supposed hypothetically that USD 750 per tonne goes, you see that kind of price prevailing in the global market that translates into a price of maybe about Rs 43-44 per kg. At that time government will again come out with a export duty of maybe about 40 percent, because the pure intention of the government is that not a single grain of sugar should go out of the country, which is a logical move and this export duties are always levied just as a trade mechanism because you can’t banned anything that it cannot go out of the country pursuant to the international regulations and international trade agreements.I don’t think that one should take this as too seriously. This is a non-event if you talk to any miller, any company they say this is just a non-event and even the domestic situation is continue to remain quite grim on the supply front of sugar and they will continue to enjoy good amount of money, but the kind of run up which we have seen in the Tamil Nadu based sugar mills which I have been repeatedly saying for last couple of weeks, I don’t see that there was any logical fundamental reason for those stocks to move up, because they were not holding any kind of inventory with them substantial quantity and even the crushing which continues in Tamil Nadu for next one or two months will not see the production of more than 1 lakh tonne of sugar for the remaining period, so overall I don’t see this export duty of 20 percent being levied by the government having any kind of effect, but yes profit booking if you doing in any kind of this Tamil Nadu sugar based stocks you should do, but market reacts to each news sometimes without understanding and this is what is happening now. So I am not saying that profit booking should not be done, but don’t initiate profit booking on the pretext of this news.Anuj: First a word on Dena Bank and all these midcap PSU banks emerging now. Is there a bit of a caution that needs to be exercised now?A: When series was started on May 27, I said that all the PSU banks those who are having presence in F&O will be giving a gain of about 10 percent. And we have seen that gain of about 10 percent and we have seen that gain extending to about 15 percent. Maybe in case of State Bank it has risen to 16-18 percent also, because this series started with Rs 185 and you have seen a price of Rs 218-220 for State Bank of India. So, what has happened that there are some of the banks which are not having presence in F&O. One like Dena Bank and second like Central Bank. So, because this F&O PSU bank stocks having run so much in this last three weeks, because this series of five weeks and started three weeks back that all of them have risen, maybe like Allahabad Bank, Andhra Bank, Union Bank and in fact Canara Bank can be added. In my view Canara Bank has also shown a significant upsurge. So, probably this non-F&O PSU banks which I have said that Dena Bank and Central Bank, they are now catching on and both are now seeing the double digit growth. But yes, maybe from a trading point of view, the momentum can be held on till expiry, but for these non-F&O stocks like Dena Bank and Central Bank, those who are holding the stock, I will advise the profit booking at the current levels.Anuj: Any thoughts on the move that Brigade is making on hiving off the hospitality business?A: If you see the Brigade, the kind of brand name they are enjoying in Bangalore market, in my view, if you really ask me they did a big blunder of entering into this hospitality business. The basic purpose or the objective of this real estate companies are which they structured somewhere in 2007 and 2008 if I remember when they took up the massive expansion plan on the Kirloskar land which they bought where they had this hotel and all that, I will not be able to give you the names and all. In fact, these are leveraged companies and they wanted that hotels will remain under the ownership of the company and they will lease it out. If you see, all this concept has never worked in this last 10 years because the kind of appreciation which we were expecting to see in the commercial properties has not come in. And apart from that, they went in a very big way in the commercial and shopping complexes also were looking for the annuity income and in fact, if you see, last five or six years, the interest cost, you have not been able to even recovery the interest cost. So, this is just a view to monetise the assets and to exit from these ownership of these properties and reduce their debt. And if they do it, this will be a very positive move, because Brigade Enterprises enjoying a brand name. Because if you talk to the people in the Bangalore market, they prefer to go into the Brigade complexes because they are known for the quality, they are known for the amenities which they all provide. So, they should have taken this step long back, may be 3-5 years back. Prestige is in a big way. In fact, you can call Prestige as a DLF of north, because they are also having a huge annuity income, but I do not think this plan has worked for any real estate company and that was ill-conceived, that was more out of greed that you keep getting the appreciation of the property. So, any company, even Brigade falls in that category. In fact, Nitesh Estates also falls in the same space from the Bangalore market. If they all exit from this hospitality ownership, that is very good for them. They are not in the hospitality business, they have just provided the ownership assets which they are holding to the conductors, those who have been owning the hotel. So, this is a very good move they are taking in.Anuj: Among non-banking finance companies (NBFC), this was a bit of a laggard. Do you think it is playing catch up or is there any story playing out here?A: it has already caught on. In fact, if you see the surge which we have seen in this last couple of weeks, I do not think that much upside is seeing that. And a while back, when we have talked about this insurance business, even Edelweiss is in the insurance space. So, I do not know what is the fate, what is the size, what is the valuations, but yes, looking to the current valuations, I do not think that much upside can be taken from here on.Anuj: Bad day for pharmaceutical stocks. And in fact, it has not been good going, led by Sun Pharmaceuticals but even in the midcaps, Glenmark and Wockhardt were down. Any stock that you would want to buy now?A: I do not think that the fresh negatives have really been seen in these stocks. Actually what is happening because we have been seeing the performance being given quite good by the other stocks like maybe NBFC or maybe auto ancillary or auto stocks or maybe sugar or maybe the dye intermediates, people have all been seen shifting their money. So, actually if you really ask me, I do not think that except for Glenmark, which has really corrected in a big way in the series, I do not honestly have any kind of concern seen on Cipla, Cadila, Wockhardt or maybe Aurobindo Pharma or maybe Lupin or maybe Sun Pharma, all seems to have bottomed out. There is just a lack of interest and this lack of interest may come only with end of expiry. I do not think that any kind of fresh renewed interest, buying interest is likely to be seen. But I will not be surprised to see the pharma stocks again coming back into the focus probably for the June series, for the June F&O series, but yes, the expiry till June 30, things are going to remain lull for these stocks.