Tulsian tells: Stock picks and market opinion from the expert

In an interview with CNBC-TV18, market expert SP Tulsian gave his stock picks and shared his outlook for the market going forward.Below is the transcript of SP Tulsian’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18. Latha: We got this news. It is still a buzz, it is not yet a done deal that the government may be looking at steps to curb sugar prices that it may force traders to release the stocks they have, control the amount of stocks traders can hold in some fashion or the other. Some steps on sugar is expected. Do you still think you will sit through this phase in fact even add to your sugar stocks? A: You have to understand and read this news in conjunction with the news or the move having initiated by the government couple of years back when they dismantled the release mechanism. At that time, the government used to give the release order to all the mills for releasing the sugar on a monthly basis. Now, the channel is highlighting that the government is looking to cut the inventory at the dealer’s level. If dealers are holding the sugar, it amounts to hoarding. And that in fact, let me just give you the ground reality about couple of weeks back, this process of liquidation had already started. And at that time, we have seen the prices softening by about Rs 0.50-0.75 per kg as well. And now, if you just talk to the Indian Sugar Mills Association (ISMA) people, they may not officially confirm it, but when you talk to them on the condition of anonymity, they say that already the food and civil supply, the government has asked them to keep releasing the sugar at a frequent interval so as to keep the prices under check. But, if you see the situation, for the first time, it has happened that probably the next year, I am not referring this year, next year we will be having the inventory of less than three months consumption. That means it will not be more than 6.5 million tonnes on September 30, 2017, mind it. But September 30, 2016 this year, we are going to see an inventory of 7.5 million tonnes. Now come on the production. It was earlier estimated at about 26 million tonnes. Yesterday, we have seen ISMA data getting released, 24.3 million tonne. You add just 0.4 million tonnes, I do not think that production is going to be more than 25 million tonnes for this season which will expiring on September 30. We will be having the consumption of 25 million tonnes for this year. So, again for the first time, country will be seeing the consumption higher than the production what we have seen. Otherwise, what used to happen that every year we used to have an addition of maybe about 1 million to the closing stock and we never had an inventory of on an average of less than four months. This is a situation prevailing in India. If you take the Asian countries situation, Philippines, Thailand, at all the places, situation is very precarious. Consumption of China is going up, so now, the inventories are held by the mills only and there is no harm. It is very much legally allowed. Government cannot initiate any kind of legal process. That is the situation. Now, it is the shortage global, global shortage. You cannot expect the commodity prices to fall. In fact, the wise council prevailed upon the mills that they did not export four million tonnes which was recommended by the government six months back to clear the cane areas. It is fortunate that we have only exported 3-3.2 million tonnes combined in both the sugar season. If you would have exported four million tonnes, then situation would have been very precarious. So, this is the ill-conceived move, in fact short sighted move prevailed. Maybe in case of the government machinery of having ordered for export of four million tonnes. But situation on the ground is very precarious. We are going to have the shortage. You cannot even import. Actually import is not required by the country. So, you have the situation even worsening next year. Next year the production is going to fall by about 5 percent. It is not going to be more than 24 million tonnes. I heard Sakthi Sugars, M Manickam saying that next year production could be 22 million tonnes which I have my doubts it will be around 24 million tonnes. But if it is 22 million tonnes for the next season, then the things can go really out of hand and it is very precarious. So, yes commodity prices has to harden, you cannot do anything. This is a demand supply scenario. Latha: Is there still value left in cement? A: You need to take a stock specific call and I think the rise which we have been seeing in Mangalam Cement has to do with the corporate news which I have been saying this for last maybe couple of weeks in respect to Kesoram Industries and Mangalam Cement that both the companies are seen coming in the fold of Birla Group. And when you talk to the insiders today or maybe for the last couple of days, they have been saying that there is some kind of promoter increase happening in the country because promoter stake is very low now at about 28 percent only with 3.2 million tonne capacity. The valuations are looking very low and Kumar Mangalam maybe is likely to get appointed on the board of the company after the cross holding having straightened by the sale of Kesoram Industries from all these companies like Century Textiles, Century Enka and Mangalam Cement. So, this seems to be more to do with the corporate move which is expected to happen very soon. Latha: Your view as well. Actually VST Tillers, after running breathlessly, practically from February, but more so in the last two weeks today has taken a pause. Is this is a time to buy? For that matter, any tractor stock, what would be your pick? A: I will go with Mahindra and Mahindra, because for the simple reason I have been saying this because if you see the sales numbers for March quarter, it was closer to about Rs 43,000 tractors were effected by Mahindra and Mahindra. Now for the April to June quarter, it is expected to be 60,000-63,000 tractors. That means we are going to see an increase of maybe about 45 percent plus growth of about 45 percent on a sequential basis. And this will start seeing from April onwards. April may not have the sales of more than 17,500 tractors, but May and June are definitely going to see the sales of tractors at 20,000 and 21,000-22,000 based on the good monsoon. So, I am quite positive on Mahindra and Mahindra and will give a buy call on the stock even at the current price. Sonia: I want you to come in on this white goods makers because you have been positive on them for many months now, Hitachi home has gone back to Rs 1,500 before you know it. Less than six months back, it was at Rs 900 or so. Do you think the time has come to take profits or if you are a long term investor, you can still hold on to names like Hitachi, Voltas, etc. A: I do not think that there is long-term substance in all of the stocks and as you have rightly said, in my Holi picks, that was the theme I picked up and gave. Llord Engineering was one of the plays from this space. So we are going to see the excellent sales happening for the next 45 days to couple of months as well because we will be having the monsoon in Maharashtra or this central part of India till first week of June. But Delhi and northern part which has the scorching heat seen, there monsoon approaches only by end of June, so you are going to have to 2-2.5 months good sales numbers, that is going to get reflected into the June quarter working as well. So, keep a positive view or maybe for about one month to 45 days, allow the rally to be seen going up and one can look for a gain of about maybe 8-10 percent from here on still at the current level. But do not keep the long-term view on the stock because again you are going to see them getting corrected whether it is Lloyd Engineering, Voltas, Whirlpool or Bluestar. All the white goods players in this space and largely in the air conditioning and air cooler. Maybe Symphony can get added to this category. Sonia: I wanted your view on some of these power transformer companies, names like Bharat Bijlee that you have been so positive on for a while, even names like Crompton Greaves, etc. Now most of these companies have got coal linkages, gas supplies. So, go you get a sense that for the next couple of quarters, things could improve for them and maybe there could be some long-term buys here? A: In fact, I have been keeping my positive stance on Crompton Greaves and you are right that if you see the power space probably transmission and distribution is the theme which is going to catch from here on. And if you take the case of transformer, there are many transformer stocks available, maybe about 10-12 transformer stocks, you have names two of them. But if you want to make, you can have a transformer and rectify even that, that seems to be a good because that is again a significant player. So, yes, keeping positive view on the transmission and distribution space and more specially on the transformer stocks. Latha: The other set of stocks we wanted your comment on was the Amtek Group. All of them are doing well today. Is anything going right again or is this just a trading play today? A: This has to go with the debt reduction theme only because sometimes I feel that maybe in this Vijay Mallya saga, the banks have all forgotten to recover the money from the other borrowers also and Amtek Group is one of them. We all know that they have the exposure or they have the debt of closer to about Rs 16,000-17,000 crore and they have been in fact, three months back, they were very aggressive to monetise some of the assets. They have indicated to the banks also of that USD one million amount can get monetised in the next 3-4 months. So, definitely there was some kind of progress which was going on which was not discussed by the banks nor by the media. So, definitely I am expecting that this move maybe getting materialised. They have been talking of monetising some of our or exiting from some of their overseas stakes which they have been holding from which alone, they can mobilise about Rs 4,000-5,000 crore. And if you see the share holding pattern, in fact Metalyst Forging, Castex Technology, JMT Auto, they are all subsidiary of Amtek Auto. Amtek Auto is the parent for all this. So, any reduction, even if it happens in Amtek Auto, the holding or the parent company will be having a positive rub-off effect on all the subsidiaries as well. So, that could only be the reason that the, let us expect and hope for a massive debt reduction of about Rs 4,000-5,000 crore likely to be seen in the next couple of weeks or so. Latha: In the agriculture space, broadly. Tillers and tractors we discussed a little while ago, but seeds, fertilisers, other kind of rural consumption play, even the likes of M&M finance and the guys who lent to rural areas. This entire space, is there any more juice left? A: I will not be going for any fertiliser stock because I have been repeatedly saying that fertiliser stocks only moves up on sentiments, not on the profitability, because any kind of better offtake or maybe the increased, or maybe the cost benefits passes on to the government because of the administered prices for Urea. And coming on the complex fertiliser, I do not think that things can be seen as big positive for which Coromandel International can all be looked into. But if you want to, if you are a compelling buyer, then look for Coromandel International, but I am more positive on the pesticides and agrochemical space going forward from here on. And in that space, there are many stocks which can be looked into like Paushak because Paushak has come out with results, they were all flat results for Q4, but it is an Alembic Group company, 75 percent stake. So, that can be looked into. Maybe the bear crop signs or maybe the stocks like PI industries. So, keep an eye on the petrochemical and agrochemical space. One can add the stocks like UPL also in that space. Though it has reasons quite a lot. So, allow Rs 20-25 to get corrected, the May level of Rs 480-485 would be a good entry point for UPL. Latha: Anything that we should have attended to? Any stock that comes on your radar? A: I am going in fact, for each stock, with the theme which I have been keeping my positive view, you take the case of cement. But if I need to look for the cement that things are looking very positive, AIA Engineering which is making the grinding media widely used by the cement sector, that company is already posting an EPS of closer to about Rs 65 and recently having completed the expansion. So, that stock looks again very good. The company has declared 900 percent dividend already in the month of March as a silver jubilee dividend and a special interim dividend. So, that is one stock. Then second stock is Harrison Malayalam. We have been talking of rubber prices hardening. This company is making 9,000 tonnes per annum of rubber. They have eight rubber state, total area under plantation is 35,000 acres in South which includes for tea, pineapple and rubber. So, rubber prices will keep hardening in the time to come and Harrison Malayalam having book value of Rs 150 with share price now ruling at Rs 63-64, this extra prices of rubber can add about Rs 20 crore to the operating profit of the company. So, these are the specific theme on which I would like to play and maybe Amtek Auto, because if the stocks have started moving up, four or five stocks can really be seen ruling at virtual at its bottom. So, these kind of advices, we have been giving to our clients to buy. And obviously, in spite of the price control news floating in, we are keeping positive view on the sugar stocks. So these kind of themes and stock specific advices is being given by us to all our clients.