SP not to spoil sugar party; Bet on USL, Mercator: Tulsian

Stock-analyst SP Tulsian of sptulsian.com explains to CNBC-TV18 that the Samajwadi Party will not spoil the dismantling of the sugar levy as it will aid the Uttar Pradesh government to increase sugarcane prices. The analyst also maintains a positive outlook on United Spirits as the sale of stake to Diageo seems inevitable and on Mercator which has kicked off coal production after acquiring coal mines in Indonesia.

Below is an edited transcript of the analysis on CNBC-TV18. Q: What is your assessment of the oil minster's statements which caused a blip in the middle of the day?
A: The contradictory statements from all the ministers are unnecessarily creating volatility.  The recommendations of Raghuram Rajan, the Kelkar Committee and the RBI will ultimately force the finance ministry and the PMO to prevail upon the hike in fuel prices in the next week. Q: Are you disappointed that United Spirits has underperformed and has actually fallen on such a good day?
A: No, I am not disappointed. The number of trading positions created on the stock is a clear sign of desperation and impatience among traders. I don't think you can really take a fundamental call on a company where a stake sale is likely to happen.
Vijay Mallya is aiming to mobilise about Rs 4,500 crore from this stake-sale. So I still maintain a positive view on the stock. It may not work on a positive day, but eventually the stock could move to about Rs 1040-1050 in next one week. Q: Does it make sense to bet on any of these companies slated for prospective divestment? Which one would be the best pick in that space?
A: None. LIC has an investment corpus of Rs 50,000 crore out of which only Rs 5,000 crore has been invested. This is a clear indication that if the finance ministry is determined to divest the stakes at any price, it will face opposition from the ministries of  heavy industries power minister and steel. If investors can take a call over three-to-five years, then all these public-sector stocks really look good. However, I will not take a call on any of the stocks lined-up for divestment. Q: Any reason why Mercator Lines has rallied by 11% today?
A: There are two or three reasons. Firstly, the company has stabilised its coal production after acquiring coal mines in Indonesia. Secondly, the company is also planning to sell a part of its stake in their overseas shipping company and thirdly, the company has plans to monetise its overseas assets by launching an IPO.
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So it is difficult to pin-point the factor that is driving the share price. But a combination of these factors has  favoured the share in the market. Analysts have started forecasting that company should be able to post an EPS of about over-4 plus or below-5 for FY13. Q: What is the extent of patience in the market? You think the market will stand at these levels even if you don’t get anything in the next 10 days?
A: I don't think that the market can really go beyond 5,500 with global positive moves  and support. So, I doubt the market will move beyond 5,500 unless the government takes policy initiatives. I don't think there is enough patience in the market time to last for a week. So, time is running against the government. Q: What are your comments on the news regarding the Supreme Court's acceptance of the CEC recommendations with respect to the illegal iron ore exports?
A: This has been under the apex court's consideration for quite some time. In fact, the court has been gradually granting permission gradually. The apex court has allowed 18 mines in A-category to start operations. Probably, 49 mines in the C-category are going to get cancelled and the order in respect to the B-category mines is expected. The market has already begun to react to this development with Adani Enterprise having corrected. Q: What do you expect from the sugar sector? Today, sugar stocks were down about three-tenths of 1%. Do you think something positive will emerge or will the Samajwadi Party play spoiler again?
A: I don't think the Samajwadi Party will play spoilsport as the dismantling of the sugar levy seems to be certain. This will also allow Akhilesh Yadav to increase the sugarcane prices as effective realisation after the dismantling of the levy sugar will go by Rs 1.50 per kg. So, I am not expecting any negative for the sector and maintain a positive view for the next six-to-twelve months.