Keep cautious view on metal stocks: SP Tulsian

The Chinese embargo or limits on metal buying will definitely be seen negative by investors, says SP Tulsian of SPTulsian.com'. He says he has cautious call on Hindalco. Below is the verbatim transcript of SP Tulsian's interview to Anuj Singhal and Sonia Shenoy on CNBC-TV18.

Anuj: Your thoughts first on what transpired in last one hour in the Bank Nifty that Market Stabilisation Scheme (MSS) issue and the fact that we saw so much intraday volatility?

A: Maybe market is playing to all sort of news which we have seen in this last one hour of MSS getting raise to about Rs 6 lakh crore for 28 days window. Now if you see the background I don’t think that news anyone had any doubt that this will not come and again we are all going to see the rate cut also as per the estimates all going on, but market likes to play on each and every news and the volatility gets created. Honestly, if you really see the announcement of this news flow, I don’t think that there is anything new to that and one should take this as a surprise, because this has been the CRR hike has to get offset by the MSS which has all being expected. The Rs 6 lakh crore which has come now is way ahead of the amount which has been squeezed via CRR — so I think both these news may be now it just a matter of the order in which these things will follow, because this MSS will come for 28 days now whether this comes after the rate cut or prior to rate cut is just a matter of what you call the strategy of the RBI to be decided, but there is nothing new in this news flow which has come in.

Sonia: I wanted your thoughts on a couple of stocks that have been the biggest losers this week. One of them is Hindalco which is down almost 7 percent for the week. It had a great trend up until this week, but now there is some profit taking. So, would you at any point, look to buy into it and the other one is Asian Paints. We have spoken about this is in the past, but once again this week, it has been the big loser. What would you do with two of these names?

A: If you first come on the Hindalco, if you see China has put an embargo or some kind of limits on the metal buying also and that will definitely be seen negative. So yes, you have to keep a cautious or negative call on all the metal stocks. The kind of run up which we have seen, maybe some of the zinc and lead producers, the secondary lead smelters also like Nile, Pondi Oxides or maybe Gravita kind of things. So, you have to have a cautious view on all the metals stocks, but specifically on Hindalco, I have never in fact convinced with this kind of run up, because if you see the business model, I do not see in what way the company is seen to be enjoying this upsurge in the metal prices also because they are the primary aluminium producers and they have not seen much benefits really flowing to them and for the copper, I do not think they are really enjoying any kind of benefits being TCRC earning only accruing to them.

Coming on Asian Paints, definitely the rising crude will be seen negative for the paint industry and you need to have a cautious view on both. So, maybe I will not take a buy call or positive call on both the stocks.

Anuj: The point Sonia makes is quite relevant. For Swift and Swift Dzire, for example, they sell off like hot cakes I have not heard of discounts at least in this bracket from Maruti. What is your thought on this stock now at Rs 5,000-5,050?

A: If you take a call from Maruti point of view, I think this strategy is perfectly right on part of the, because either you cut the production and you see the sales falling maybe to a level of 1,00,000 cars per month and all sort of things. Number two, I have always maintained that when the stock has moved to a level of Rs 5,300-5,400 that the stock has reached to its optimum level. But the kind of bullish views presented at that point of time, in fact if you take a chart or maybe the view on Maruti of the last six months, it was bizarre. When it was ruling at Rs 3,300-3,400, people have been giving a negative call because the yen was hardening against the dollar. It moved to a level 102-103 per dollar and the experts have taken a view that things cannot really move up because as long as the yen remains at those levels. Yen did not weaken thereafter, but the stock has almost seen a rise of 60 percent, number one. Number two, at that point of time, I have always been preferring Maruti over Tata Motors, but majority, I am not trying to blame or I am not trying to blow my trumpet, but at that point of time, Tata Motors was liked more by the market which has also proved wrong.

So on this strategy if the profit booking is coming in, it is giving a buying opportunity, maybe at a level below Rs 5,000 because as such you can see the price getting capped for Maruti at Rs 5,400. Nobody can rule out the kind of negative effect likely to be seen because of the demonetisation, but that is likely to remain confined only till December. I do not think that the shortage of currency supply will go beyond there and the things will dramatically change. And just to recap, in maybe the last couple of days when the market was moving up, I have seen the experts changing the view that the effect of demonetisation will not be very high. On November 30, when I was asked that why the automobile stocks have been going up, people have all been saying that probably the hit may not be that bad for the two-wheelers and cars. So, we keep changing our views looking to the market movement. But I do not think that the things were looking positive as such till December 31 otherwise also and I will not be too disturbed with this Maruti strategy and if it falls below Rs 5,000 then it qualifies a buy as an investor.

Sonia: We have discussed this earlier, but anything from the paint companies, the tyre companies that got impacted this week, because of higher crude prices or even aviation companies you have been negative on aviation stocks, but what about the other pockets?

A: Yesterday, in fact I have expressed this because of this crude three sectors are going to get impacted; one is the paint stocks, second is the telecom stocks and third even if you take a call on the tyre stocks also. Aviation, paint and telecom because mind it in the telecom the towers are consuming lot of diesel and no one has really talked of that and if you have the double whammy like Jio extending their free schemes till March 31 that is also seen quite bad for them.

Coming on tyre stocks if you see the price behaviour or the pattern the rubber prices have gone up in China than corrected couple of days back and it has been swinging to that volatility. If you really see the situation prevailing here in India, the Q2 numbers have not really cheered much and so what I feel that all the tyre stocks seem to have picked out and will only give you the volatility depends on the natural rubber prices behaviour and if you take the synthetic rubber also styrene-butadiene rubber (SBR) that will also be seen going expensive with the rising crude prices, so negative or maybe cautious view on all the four sectors which I have stated.

Anuj: Any stock that has corrected which you fundamentally like right now?

A: If you want to take a sector rotation call then already cement and non-banking finance companies (NBFC) which were recommended by me about two weeks back have given a good profits. You have referred for Grasim, so if I take a call on three Grasim related stocks, that is Grasim, Aditya Birla Nuvo and UltraTech Cement. I am keeping a positive bias on all three. And if you take a call now on the auto ancillary stocks, probably they are looking quite good and amongst them, maybe like Pricol which is going for the restructuring from this Monday, maybe there will be a delisting or maybe the suspension for about a couple of weeks but I really find huge value in that. Or maybe like Ucal Fuel Systems, Rico Auto, Harita Seatings, so I am quite positive on the auto ancillary stocks at the current level.