Buy Maruti, M&M and Bajaj Auto: Tulsian

SP Tulsian, sptulsian.com, says that he does not have negative view on auto stocks. But I will avoid Ashok Leyland and TVS Motors as they have been losing market share and profitability is under pressure compared to their peers. However, I have a positive stance on Maruti, Mahindra and Mahindra, Bajaj Auto, Hero Moto but I have a cautious view on Tata Motors as the stock has run up too much and profit booking can come in at Rs 280 or so which is seen to be the strong resistance.

Below is the edited transcript of his interview to CNBC-TV18. Q: There are important meetings later in the evening as well what you are expecting to fructify this time around?
A: Currently, FDI in aviation looks certain. I am not sure about FDI in multi brand retail because FDI in single brand retail will also be deliberated. But the kind of initiative which the government has taken seems that they have taken their ally Mamata Banerjee and maybe their partner, Mulayam Singh. Both have seen to be the main pillar for pushing up these reforms and if that happens then one can expect FDI in multi brand retail.
I agree that infra projects needs to be pushed. Today, Jayanthi Natarajan said that only two projects are waiting for the environment clearances because the kind of IMG deliberations and the outcome which they have seen from the meetings that all the industrialists say that they are waiting for forest, environment clearances, land acquisition so the government is serious to push all those reforms.
Once that happens, then the problems of the banking and capital goods industry can be solved, and the economy can be put back on the track for achieving the respected GDP if not on y-o-y basis then at least in the whole of the 12th five year plan. Next 30 days will remain eventful from Delhi. Q: OMCs have disappointed; BPCL is now down 1.5% after good start. How would you approach them from here?
A: There are combination of various factors for the disappointment for OMCs stocks, like rising crude price in crude market, fear of rollback, chief of OMCs mentioning that they are only getting Rs 3.50, not Rs 5 and lastly the euphoria of buying call getting generated or the people becomes too euphoric to just enter into the stock in the opening trade only. Generally, it is seen that whenever there is a fuel price hike the stock of OMCs rally for the first 15 minutes and later the rally dries up on account o profit booking by old investors who have entered at the lower level. With a fuel price hike one cannot BPCL, HPCL or IOC to report profits; they will continue to have the losses and liquidity crunch. The only thing they have to wait for is the subsidy sharing by the upstream as well as by the government, which happens at the fag end, maybe in the Q4 Q: IVRCL mentioned that the infrastructure projects have completely dried out, NHAI will for sure not meet its guidance that it has started out with an FY13 or at least the Prime Minister had started out with, now that the finance minister has set a fresh timeline for clearances of these projects, which are the infrastructure stocks that you would bet on from this level?
A: I do not think that the procurement or the bidding for the new projects will be the trigger for the stocks to move up. Names like IVRCL, Nagarjuna Constructions, GMR Infra and Lanco Infra all of them are interested to move out from the road projects.
According to the information available they are only able to just – the offers, which they are getting is just to exit at the breakeven or at the cost level otherwise earlier they were expecting 30-40% on the appreciation on the capital cost, which they have procured couple of years back. In the demand-supply scenario on the existing on the completed roads as well as the roads, which are getting completed in next twelve months, the supply looks to be quite high.
I will not be too enthused on the new road projects getting cleared by the NHAI or maybe by the government but things will definitely improve once the fund flow from the banks becomes easy and the potential buyer for the existing completed projects comes in the form of the overseas investors who maybe either the PE investors or maybe the other combination of the buyers who will be interested in taking over the completed projects which are already there with the mentioned existing infrastructure companies. Q: How are you approaching the market now, are you taking profits close to 5600 or keeping all positions open?
A: I think the market will find it difficult to move beyond 5650 level and I am cautious namely on three sectors; pharma, IT and FMCG. I am expecting the profit bookings to come in because ultimately the positions needs to be shifted from these three sectors which many people perceived as the most defensive and have been taking the calls or positions in these sectors. All these three sectors may not break, but there may be a weakness of couple of percentage in these sectors and the position will shift more to metal, automobile, real estate and banking & finance sector. Some balancing will definitely happen. On the Nifty, I have a call of 5650 and 10950 for Bank Nifty. Q: Ashok Leyland, Escorts and some midcaps names have come off from the high point of the day as we speak on the back of the diesel price hike would you recommend profit taking in any of these auto names or would you get a little more circumspect on few auto makers?
A: No, I don't have negative view on auto stocks. But I will avoid Ashok Leyland and TVS Motors as they have been losing market share and profitability is under pressure compared to their peers. However, I have a positive stance on Maruti, Mahindra and Mahindra, Bajaj Auto, Hero Moto but I have a cautious view on Tata Motors as the stock has run up too much and profit booking can come in at Rs 280 or so which is seen to be the strong resistance. Q: We haven't heard any noises from the Opposition on rolling back of the diesel price hike although there has been a lot of angst that has been depicted, do you think these reforms, not just diesel price hike perhaps the impending reforms like FDI in aviation etc can go through smoothly or do you think the same process of opposition coming back with a bang will be seen from here?
A: It is compulsory for the government to push reforms and there are chances that there will be noises from opposition in next couple of days.
The economic sense or the sanity seems to be prevailing upon and that seems to have understood because yesterday also the reactions of all the people - the economic sense or the economic compulsion always demands that this price hike has to come because if you take the larger picture the negative rating of the country or maybe the stoppage or the slow growth of the investments and all that can have a far reaching impact so I don't think even if the noises as made by the oppositions will really be taken by the people or the masses. Q: How would you approach couple of these power names because Power Grid most of the people said it would be the top pick in the utility space and there were lot of buy calls which came in on the likes of a Power Grid and in general the power sector, how are you approaching them?
A: I dont have a positive view on Power Grid because if you see the performance of this stock for last five years, it has moved in a range of maybe five years back it used to rule at Rs 150, we saw price of Rs 70 now moving back to about Rs 120. If you want to be bullish on the power stocks probably PFC and REC falls best in that category followed by the power generation stocks, which could be three stocks that comes in mind, Tata Power, Torrent Power and maybe JSW Energy. So these three stocks look quite good in power generation space and in power financing, I will go with PFC and REC.