Despite the midcap carnage and the slight recovery seen in them in the past two weeks, SP Tulsian of sptulsian.com is not shying away from the midcaps.
Despite the midcap carnage, SP Tulsian of sptulsian.com is not shying away from buying midcap companies' stocks. On the contrary, Tulsian is betting big on Berger Paints, Zee Enterprises and Bank of India among the PSU banking space.
With the Government hiking the diesel prices in the recent past, Tulsian believes the hike will help oil marketing companies (OMCs) only sentimentally and not financially. The reason, he explains is because the OMCs have to still depend on the Government for subsidies.
"In the interim period, maybe for a major part of the financial year, they have to rely on the borrowings. And this is infact taking a big hit on their bottom-line, on their liquidity positions. So, I don’t see anything concrete or positive for the OMCs in the near-term but the sentiments are definitely building up in favour of them," he adds in an interview to CNBC-TV18.
Below is the edited transcript of Tulsian's interview to CNBC-TV18.
Q: The government has been periodically hiking the diesel prices and that atleast has become a tailwind for now. How would you approach the oil marketing companies (OMCs) given the kind of news flow that we have seen. Would you be an incremental buyer in any of the names?
A: All those moves definitely will not be improving the financial health of all these oil marketing companies. However, sentimentally they are giving a very good push. The OMCs have been adhering to the policy initiatives the government has set about a couple of months back. It is seen quite positive by the market. It has, infact, reflected into the price behaviour of the OMCs. However, the OMCs have to depend on the heavy subsidy contribution coming in from the government and the contribution from the upstream companies. In the interim period, maybe for a major part of the financial year, they have to rely on the borrowings. And this is infact taking a big hit on their bottom-line, on their liquidity positions. So, I don’t see anything concrete or positive for the OMCs in the near-term but the sentiments are definitely building up in favour of them.
Q: Apart from the Reserve Bank of India (RBI) policy , what are the top three or four events that you would watch out for which would have an impact on stocks?
A: First one is the scraping of the levy quota for sugar sector because that has been pending for quite a long time. That should really come now because the government has been dilly-dallying on compensating the loss of about Rs 2000 crore to the exchequer by increasing the excise duty and if both comes; the increase in the excise duty by about Rs 150 per quintal and the scraping of the levy quota that will be seen quite negatively by the market.
Second cue will the Steel Authority of India (SAIL) offer for sale (OFS). Inspite of National Aluminium Company Limited (Nalco) OFS having gone through, I am not too happy. I don't see the government being really pragmatic about it. So, whether they are firm in going ahead with the SAIL OFS or not is really to be seen closely.
Q: Your ideas look very good as well because there is Titan in that list. That stock saw 6 percent loss last week because of the stricter KYC norms, but you do see an opportunity there and if you could also take us through the other stocks that you have picked up for the week?
A: The counter was heavily short. Probably the short covering has made the stock to move up but at the fag end, maybe in the last one hour, I found that renewed buying interest coming back into the stock. That indicates a very positive move for the stock to take a long position in the coming weeks. So, maybe short covering coupled with fresh buying is the trigger.
Q: What about the other stocks that you have picked out anything in the mid cap space that you would recommend buying into?
A: Berger Paints which has corrected now to about Rs 190 looks a very good stock because the company acquired the decorative paint division of the Sherwin Williams last week. That will be increasing their top-line and bottom-line. Otherwise, all the paint stocks have really been doing quite well on the bourses for the last 5-10 years. Berger Paints amongst the prominent companies can quickly move to about Rs 205 in the next week.
Zee Enterprises saw the downgrade report coming in last week on the stock. That has made the stock correct largely because of the liquidations of the long positions, but now the stock has really seen the trading positions going light. Or maybe, weak hands have exited the stock and again renewed buying may be seen in the stock which can make it move by about Rs 12-15.
My last stock pick is from the public sector banking sector and it is Bank of India. Going by their fourth quarter tax installments, which have seen a higher payment by about 85 percent, it makes the stock look quite good. Ahead of the rate cut expectations from RBI, one can probably keep a eye on some of these PSU banks, so I have chosen Bank of India from that space.