Tulsian sees Nifty at 6100, bets on banks & IT

SP Tulsian of sptulsian.com has a positive stance on the market for next week and expects a target of 6,100 on Nifty. In an interview to CNBC-TV18, SP Tulsian said, "I have a positive bias largely in view of the better results lined up in that week."

Although Infosys came out with stellar results, he does not advice going long on Infosys. Maybe brave traders can go short at Rs 2,710-2,715, he added. Below is the edited transcript of his interview on CNBC-TV18 Q: If it wasn’t for Infosys, we would have definitely broken this 5,950 range. Do you see some amount of weakness which is seeping in and is it more prominent in the broader markets now? A: The new trend which has emerged today is negative on oil and gas, and positive on IT. I am not too disturbed with the cement because the weakness in the cement from the sectoral point of view is continuation of the weakness, which we have been seeing for last couple of days. On Wednesday, I had said the market would remain weak maybe till end of Friday i.e. till today. There are basically two events, one Infosys numbers and two, index of industrial production (IIP) numbers and they have not disappointed the market. In fact they have helped the market to salvage some of the lost ground. Going forward, next week there are good results lined up, like Axis Bank or maybe Tata Consultancy Services (TCS), where I am expecting positive results coming in. Definitely things are likely to improve.  So there are two sectors which are going to help the market in the next week and they are Bank Nifty and IT. Since, I maintain my original call of positive momentum on three out of the five days of next week, so Monday will also be seen as a positive day. Hence, I keep a positive stance with a target of maybe close to about 6,100. However, thereafter the concerns will start building up again after one week or so. Hence, from next whole week, I have a positive bias largely in view of the better results lined up in that week. Q: What is the view on Infosys now? The easiest trade in the last many months was to short the stock and now it seems like the easiest trade is to go long on it. Do you think for now you would wait and watch after the 15 percent upmove that you have seen? A: In my view, it would be wrong for any trader to go long on Infosys at more than Rs 2,700 because the rise of 15-16 percent which we have seen today is a combination of both short covering, as well as building up of the long positions. In building up the long positions, you see the exuberance because the traders who follow the trend, till yesterday were following on the short side and today they are following it on the long side. Talking about fundamentals, the share is now ruling at a price to earning (PE) multiple of more than 16, maybe 16.2-16.3. Taking the expected earnings per share (EPS) of about Rs 165-166 for FY13, and if you apply the same PE multiple for TCS with EPS of about Rs 74-75 for FY13 then that is ruling at a PE multiple of 17.3 times. So, I do not think that the differential of 100 bps is justified. In my view looking at the track record and looking at the consistency in the performance having posted by TCS, this differential should have been at least of 200 bps. So either TCS rises from hereon with a PE multiple of 18-18.5 or Infosys contracts to a PE multiple of close to about 16 or so. One cannot say that what will happen unless and until we see the results of TCS. In the interim it is better to remain away and maybe the brace traders can look to go short at a level of Rs 2,710 to Rs 2,715 in the cash rate. The equivalent rate has to be seen in the Future. Yesterday we have seen the positive bias on oil and gas, in spite of no reason for that sector to perform well. Today, that position has shifted to IT. So, maybe the positive bias will remain on IT for a week or so, but you never know the position may get shifted to the banks. The traders may even come back to cement because the valuations have become attractive for stocks like Ambuja Cements, ACC, UltraTech Cement, Shree Cements, in fact they are all looking quite attractive. The shifting of the position from one sector to another sector is happening so swiftly in the background that I wouldn’t advice going long on Infosys. Maybe brave traders can go short at Rs 2,710-2,715. Q: One of the biggest losers this week has been Bharat Heavy Electricals Limited (BHEL), it lost close to 7 percent. We had many brokerages negative comments coming in as well. JP Morgan has a target price of Rs 195 on BHEL. What are the primary concerns in your mind and how much lower do you think the stock could head? A: I think the action replay seems to be coming back. About six to eight months back there were a lot of negatives on the stock at about Rs 215-220 and maybe those negatives really came at Rs 240-245 and it fell to Rs 215 or so. Maybe the market was taking a call that it will fall to about Rs 175-180. There is no doubt that in the near-term there are all kind of concerns in respect to the power generation industry. Suddenly, you will see that once the reforms are taken up in respect to the fuel supply arrangements, in respect to the coal supply, there will be a drastic change happening. A level of Rs 210-215 makes a very good entry point where the shares will be available on a historic price-to-earnings (PE) multiple of maybe close to 7.5-8 times. There is also good comfort in terms of the order book of about Rs 150,000 crore although there are no fresh order inflows coming in. However, I expect sentiment to improve like it improved in cement in the last four to six months, so I keep my positive stance on the power generation sector for 2013. Probably there we will be a good shift of perception change, which will be seen as quite positive. There is very limited downside from hereon maybe a fall of about Rs 10-15 but on the upside one can expect a rise of Rs 50-60 if somebody keeps a view of three to six months.