In an interview to CNBC-TV18's Anuj Singhal and Surabhi Upadhyay, SP Tulsian of sptualsian.com shared his views and outlook on the fundamentals of the markets and specific stocks.
Below is the verbatim transcript of the interview.
Anuj: Last week when the market was declining, you were gung ho on PSU banks. But phenomenal rally playing out. Your thoughts on Punjab National Bank (PNB), Oriental Bank of Commerce (OBC), Canara Bank, the way some of these stocks are now running?
A: You are right and in fact two days before the expiry of the June series, I have said that across the board, all PSU banks can give you a gain of about 10 percent in July month and we have already seen a gain of more than 10 percent in some of the stocks like PNB, OBC and we have been keeping a positive view on 4-5 PSU banks, that is PNB, Bank of India, OBC, State Bank of India (SBI) and Canara Bank.
And I think maybe at that time, the kind of pessimism which was prevailing about the additional provisioning to be made in respect to the 12 non-performing asset (NPA) accounts, that was really scaring the market and actually at that point of time, I have said that the amount is not looking to be so severe because 40 percent of the provision has already been made.
And we have seen that affirmation seen coming in from the bankers like PNB and Canara Bank where in case of Canara Bank, the additional provisioning is not more than Rs 3,100-3,200 crore, while in case of PNB, it is not Rs 2,400-2,500 crore. And that too, which will get staggered over the next four quarters to get provided and it is not mandatory to have equal provision, it is discretionary that banks can stagger it all in Q4 alone.
Now if you take the situation going forward, the kind of valuations at which they have been ruling and the hopes which we have been seeing on the resolution front, for the time being, even if I keep aside the Essar Steel Gujarat matter, if you take the situation, in fact that shows the desperate attempt by the promoters to keep the company in their fold.
And they have said that they have paid an amount of Rs 3,467 crore in the last one year in the form of interest. And they have said that after March, 2016 the situation has changed dramatically and that is what my stand has been that these five steel accounts and one Amtek Auto will be seeing the quick resolutions.
In fact again media is slightly getting confused and misinterpreting on the move having initiated by the Essar Steel to Gujarat High Court. Maybe RBI having admitted of the drafting error for the notification where it is more seen as a direction to the quasi-judicial authority like National Company Law Tribunal (NCLT) to expeditiously resolve that which has been objected by the Gujarat High Court, rightly so.
Once that happens then situation will really be seen quite positive. And as I said, these all extra provisioning is seen to be quite minimal considering the operating profits of all these banks. In fact I am very gung ho. In fact June, as I said that I have been keeping my time horizon was till July or maybe till the month of July on all these PSU banks, but having met a target of 10 percent does not mean that the upside is not seen more from here.
Actually all these stocks were under owned, short sold and the positive news, the combination of all three factors will see the buying interest continuing in all these PSU stocks and more specially on the stocks like Canara Bank, SBI, PNB, Bank of India kind of stocks and we continue to have the positive momentum which we have given a buy call in the two days before the start of the July series.
Surabhi: We have some news flow on two pharmaceutical stocks today, Biocon getting into a bit of trouble with respect to one of their facilities with the French regulator and Divis Laboratories saying that the import alert with respect to one clause has been lifted but the plant still remains under import alert, the stock is still however, a little excited. Your thoughts?
A: Firstly, I do not think that I am too much worried on the French regulator kind of concerns having raised on Biocon. But if you see Biocon having run up so much, you cannot really expect the things to keep moving up and down and naturally, with this kind of adverse news coming in, the profit booking is bound to be seen.
But coming now, specifically on Divis Lab, which I have repeatedly again, in this last one month, three stocks which we have been holding on the buying list, if you are a compulsory buyer in pharma, then three stocks, Aurobindo Pharma, Glenmark Pharma and Divis Lab, which we have been repeatedly giving a buy call on these three stocks only in the last one month.
And we continue to have because purely on the valuation perspective, definitely, one negative getting lifted from the inspection report is definitely seen positive, but the kind of run up which we have seen also shows the technical factor plus the value buying seen having come in in the Divis Lab and we continue to have the positive bias on Divis Lab coupled with Aurobindo Pharma and Glenmark as well.
Surabhi: Your thoughts on the other news piece that developed over the weekend and you were cautioning investors about this actually even on Friday. This mega merger of sorts between the Shriram Group and IDFC, IDFC Bank. Now that those stocks have corrected about 5 percent a piece today, what is your advice?
A: I have been keeping my cautious and reserved view on this IDFC merger and if you see the development having taken place on Saturday, in fact if I just quickly come on the corporate governance also, if you really see the intimation having given by all these four companies on the stock exchanges, it just says that they will be exploring the possibility of merger within 90 days and nothing has been spelt out.
While in the press conference, the management has been categorical in respect to all the companies in respect to Shriram City Union Finance likely to get merged with IDFC, Shriram Transport Finance Corporation being kept aside in a separate way, so I do not understand whether this is really the correct corporate governance or not that whether the information have been revealed more to the media instead of intimating those to the stock exchanges, number one.
Number two, if you see the situation now going forward, in fact if you take the valuation call, maybe Shriram Transport Finance having corrected by 4-5 percent that makes a good buy because if you see the situation going forward, I think that it is very unlikely that RBI will be making a different precedent altogether where an NBFC will be allowed to run parallelly along with a bank where the statutory liquidity ratio (SLR) provisions are not getting complied with and all sort of things.
So maybe I am keeping positive view on IDFC Bank going forward because that will definitely be increasing their business once the Shriram City Union Finance getting merged thought the valuation terms, and swap ratio and all have not been spelt out, but now, I will be taking a positive view on IDFC Bank and Shriram Transport going forward. But I have my so many reservations on the loose ends which we have seen existing in case of this corporate merger announcement having spelt out by both the groups.