In an interview to CNBC-TV18's Sonia Shenoy and Anuj Singhal, SP Tulsian of sptulsian.com shared his readings and outlook on the fundamentals of the market and specific stocks.
Below is the verbatim transcript of the interview.
Anuj: The stock that we are discussing now is Can Fin Homes, one of the stocks that you like. These look like really good numbers.
A: Indeed, very good numbers and in fact, if you see the sequential growth, two things have contributed to the increase, mainly the reduction in the interest cost, asset quality has been very good and in fact, on a sequential basis also, the things are looking quite good. So, yes overall. And I do not think why the company will not continue with this kind of momentum which they have been showing.
Sonia: We are now starting to see all the old economy facing stocks that are rallying, whether it is Larsen and Toubro (L&T), Reliance Industries, HDFC. The whole lot is really taking the market higher. How do approach the market at a time like this? If you have to put incremental money, where do you put it?
A: You have taken the name of three frontline stocks that is HDFC, L&T and Reliance Industries and if you see, all three has its own reason. For Reliance Industries, the Jio launch and having come out with the clarity that it will go paid services from April 1, that has seen the renewed interest coming back into the stock and yesterday, we have seen very good numbers from their core operations also from the refining as well as from petchem.
HDFC again has been the beneficiary of the housing finance companies and across the board, in fact, there are 10-12 pure housing finance companies listed on the stock exchanges. And all have been doing very well. In fact, Can Fin Homes, just now, we have talked which have shown a growth of maybe about 30 percent in the earnings on a year-on-year (Y-o-Y) basis. Maybe current year they will be crossing earnings per share (EPS) of maybe Rs 105. So, HDFC has been seen the beneficiary of that.
L&T yes, the infrastructure story has been catching on though I have my apprehensions on that. But on a standalone basis, L&T has been doing that very well. And in fact, their engineering and construction division has bagged many of the contracts. But my point is that yes, frontline will keep giving you the gains, but the kind of midcap and smallcap, the gains which they have already given and will continue to give those kind of gains because generally what happens, in the frontline stocks, you have a cap on the price-earnings ratio (P/E) multiple.
It takes time for reliance industries to move from P/E multiple of 15-17 or 15-18, but that is seen very fast in case of midcap and smallcap where we have seen them ruling at a P/E multiple of anywhere between 15 and 40 because largely because on the earnings growth expected to be seen on those stocks and on the net present value on the basis of both.
So, yes I agree that frontline stocks have been doing very well, but I will be keeping my investment portfolio spread across the board, maybe 30 percent in frontline, but maybe about 60-70 percent in the midcap and smallcap stocks as well.
Sonia: We have discussed this in the past as well as to the pressure points that Axis Bank has had. But now, the stock is surging ahead of earnings tomorrow. Any thoughts?
A: I have been keeping positive view on all the banking stocks including PSU banks, but particularly for Axis Bank because I have not seen any kind of hopes seen coming in. in fact, market has always been expecting, if you recall, maybe from Q1 of FY17, Q1, Q2, Q3, but continuous disappointment has been seen from the bank for the last three quarters. I am honestly not keeping any positive hopes for Q4 also and taking that into account, because then I will not be because on a relative basis, you have the much comfort seen in any other banks, either in the case of banks, those who have declared the results like HDFC Bank, IndusInd Bank and Yes Bank or maybe the results which I will, if I want to speculate ahead of the results, the probably I will take punt in ICICI Bank rather than Axis Bank from a near-term point of view.
Anuj: Did not get a chance to discuss Indian Bank with you. Second top F&O gainer today after Biocon. Do you think it is a case of relief or do you think the numbers were genuinely good?
A: I would say that numbers are mildly good, but I do not think that the present price justifies this because probably this has been happening because of the stock having mobbed up. If you see, equity of the bank is quite low, below Rs 500 crore that means below 50 crore shares. And about Government of India stake is closer to about 82-83 percent stake. So, it becomes very easy because I agree that the bank has shown the better numbers.
But if you take the call on the stressed assets of Rs 9,500 crore still, though the performance, and book value share is now ruling at a price to book of one plus. I do not think that the current valuation deserves. Probably the momentum is seen playing into the share price at the current level.
Sonia: Nilkamal is stock I was talking about and how it has just zoomed in the last 5-10 minutes now sitting at the high point of trade. I wanted to get you in on this. I know you have been positive on this stock. We have been speaking about this for the last many quarters. 7 percent higher now on Nilkamal. You think that there is more scope here and the worst of the demonetisation impact, etc. is all behind us?
A: In fact, we have been keeping positive view on all the plastic furniture makers or maybe the moulded plastic kind of things. And Nilkamal is definitely seen the leader in that space in terms of the highest margin and in terms of the better topline. But, if you see, this particular segment, there are more than 20 companies available in this space in a similar kind of, if you include plastic packaging, plastic container kind of things. So, maybe if you want to ride the momentum, probably Nilkamal is seen good, but apart from that, purely on the fundamental basis, there are many other stocks which are available, may not be on the terms of margin comparison.
If you take a call like Supreme Industries who will be out with the numbers in a day or two or maybe the companies like Prima Plastics or maybe the company like Wim Plast, they have all been having the good margins or maybe company like pearl polymer which can be a turnaround case. I am just giving you some of the example, they may not be necessarily as the buying recommendations. But that is what I say and the demonetisation effect is definitely not seen for all these plastic packaging companies and more into the plastic containers kind of things, plastic container, plastic furniture, those who have been indulged into it.So, yes, Nilkamal is definitely seen the leader, but at the current valuations, probably I will refrain from buying its stocks because probably the momentum is seen rising it further from here on.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.