Preference would be Infosys followed by HCL Tech: SP Tulsian

In an interview to CNBC-TV18, SP Tulsian of sptulsian.com shared his outlook on the market and also gave recommendations on various stocks.

HCL Technologies posted a good set of numbers for the June quarter. Tulsian said that although positive bias can be seen building up for guidance, one shouldn't take a call on a company on its quarterly performance. From technology pack, his preference would be Infosys followed by HCL Technologies.He expects 15 percent returns on Infosys, HCL Technologies and Tata Consultancy Services (TCS).Below is the transcript of SP Tulsian’s interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Sonia: I am sure investors will be very heartened with the fact that HCL Technologies has given guidance for the future and in a time when the environment is so uncertain, what is your view? Do you expect to see a big upside on the stock?A: Two points. No one can dispute about the positive bias now seen building up in view of the guidance and in view of the results both. But we should not forget one thing that if you take maybe about last two weeks chart, or maybe the stock performance of all these companies, HCL Tech has risen by about 10 percent already, while Infosys and TCS have corrected by about 10 percent. So, I do not think that you now have a gap of 20 percent, you just cannot write-off a company or you just cannot take a call on a company merely on a quarter performance. We have seen that happening in case of Infosys post Vishal Sikka, we have seen positive bias seen building up about 4-6 quarters. But that cannot be the linear trend for taking a call on the stock.As I said, no dispute about the financial numbers posted by the company, future course of action, guidance, margin pictures, everything is robust and that is going to get reflected into the share price, but can you put HCL Tech on top of the pecking order? I would say no because as I said that this is 20 percent and 20 percent is a very big price variation, which we have seen between these three or four companies whether you take TCS, Infosys, I am not including Wipro or Tech Mahindra in that category. Even if you compare or I can say that for that matter, Mindtree which has a high beta character, so, yes, the numbers are very good, but my preference would go with Infosys and then followed by HCL Tech.Latha: But would you have a price target that can rise to? Its year ago level was Rs 950. What would you legitimately give the stock now?A: I never give price targets of these IT companies because I just take an investment call and I say that look for a return of maybe 12-15 percent on an annualised basis, because you see these kind of hiccups coming in. One bad quarter, two good quarters, but I would say that yes, initial uptick which will be seen in the market today could be as high as 6-8 percent and then that would form as a base to take a price target call thereafter.So, allow the share to settle, see the price behaviour today, because as I have said you now have a base price of all of them. So, base price of HCL Tech will get discovered probably today at the closing hour, because the result, such good numbers and guidance, will get factored in today and then take a call. Maybe return of about 15 percent thereafter practically on all the three IT biggies.Latha: Just wanted to ask a couple of questions on the numbers that came in yesterday. There were stocks that you take a great deal of interest in like Torrent Power, which appeared to have disappointed, UFO Moviez seems to be another disappointment, your take on the recently released numbers?A: You are right that all the numbers that we have seen post market hours have been the big disappointment. Torrent Power is the replica of Q4 because the kind of performance which we have seen from Torrent Power of FY16, first three quarters have given big hopes, because in Q4 there was one time write-off of about Rs 300 crore, which was not expected to be seen in these Q1 numbers. The kind of operating profit at about Rs 280 crore are exactly identical on the lines of what they have posted for Q4 against Rs 550 crore of Q1 of the same quarter of the previous year. So, that is a big disappointment.Second disappointment is again coming on the Ugar Sugar because the companies are only selling the inventories, but still the kind of performance that they have shown with the bottomline of just closer to about maybe profit after tax (PAT) of just Rs 1 crore was not expected from the company -- this kind of performance.The one result, which stands out is that of Cybertech Systems and Software. That company has posted good numbers. Second could be of Wim Plast because Wim Plast on a year on year (YoY) basis have shown good numbers. They have given a 1:1 bonus, Rs 22-23 earnings per share (EPS) for Q1, maybe they can stretch it to about Rs 90 EPS for FY17. So these are the mixed reaction, two bad numbers, two good numbers which you have seen post market hours yesterday.Sonia: I also wanted to ask you about Motherson Sumi because you have a big board meeting coming up today and there are talks of either an acquisition or maybe a restructuring, etc. You have tracked this story very closely. For an investor into Motherson Sumi, do you think that it still makes sense to stay long on the stock and would you accumulate at current levels?A: I have been keeping my positive bias again on the stock since the days when it used to rule Rs 240-250 about 4-6 months back and there are two stories, which you have rightly pin-pointed. I am not too worried for the restructuring of the merger of their European units because when the stock was ruling at Rs 230-240, people have been saying that the holding company discount and all that, but we have seen the share moving to Rs 340 so swiftly. But inorganic growth is the key for the company because the kind of guidance, which has been given by the management for 2020, inorganic growth has to come and there are a lot of talks going on that they seem to be serious buyers identified, two or three things.My eyes will be more on the inorganic growth, I am not too worried or too concerned, for the restructuring whether they merge their European business into Samvardhana Motherson Reflectec (SMR) and Samvardhana Motherson Peguform (SMP) with the flagship company or not does not matter, because ultimately, I agree that some discount element always exists. But market will take it in its stride because at even restructuring move will come maybe later after 12 months or 18 months or so, but the immediate need for the company to meet that 2020 guidance is to go for inorganic growth and if they go for it then that will be very interesting to analyse at what price, what will be the size, what would be the growth and all that. So, yes, continues to have a positive view, but my eyes will be more on the acquisition announcements if any to be made by the company in today’s board meeting.Latha: Just to get away from the market and look at the stock Larsen and Toubro (L&T) that Anuj was referring to. Yesterday the management clarified of course that the market is probably confusing Indian Accounting Standard (Ind AS) issues with the real issues facing the company. What is your take on the stock now?A: I expressed my view that I am not disappointed with Q1 numbers because if you see their main sector that is infrastructure segment on a YoY basis -- I am not comparing on Q4 because Q4 is always the best for the company -- have shown the margin expansion in the infrastructure segment, number one.Number two, order inflow has all been very good and as regard this accounting standards they have very well clarified that it will get carried out in Q2 and I don't think such a big cause of apprehension to take a call. So, taking all this into consideration probably market was overboard that maybe the Q4 kind of performance, which will be seen from the company in Q1 also.But in the case of L&T they have always maintained that quarterly is not the indication and I agree with a cumulative order book of close to Rs 2.57 lakh crore and taking all this into account -- when you have such a positive view building up on the economy and the things going on, take the case on Bombay you have the coastal road, you have Navi Mumbai Airport, so many metro rail and L&T is seen a big beneficiary of all those orders -- so, I am keeping my positive stance but there is only one apprehension or one cause of worry where the management has indicated that don't expect any miracle from Q2, which may keep the share price subdued for the next month or so and maybe allow the shares to settle down by a fall of maybe about Rs 30-40 further from here on.Anuj: Two stocks where we have seen life highs and valuations getting rich, Maruti, we have spoken about that in the past, but incremental thoughts on that, how should you approach that stock and even Eicher Motors?A: I have been probably the lone person who has been taking a positive call on Maruti. I am not trying to say that I have proved right, but the kind of comparison that was made when Maruti was ruling at Rs 3,500 at that time, that yen was weaker and had strengthened to 103-105 to the dollar, because we have seen the olden days of 125-130 to the dollar, but see the best ever domestic sales by the company and the kind of order booking which other auto makers have such a long waiting list of 6 months and all that. But ultimately, the share has reached to its point of Rs 5,000. In fact my call was Rs 4,500-4,600 and we have been giving it as a screaming buy when it used to rule at Rs 3,400-3,500.If you see the relative performance compared to Tata Motors, this stock is way ahead in terms of their performance and all that. I am quite hopeful and optimistic on the performance of the company but not at a price of Rs 5,000. Those who have bought at the lower level, I will not be hesitant in advising them to go for profit booking. Look for a level of again maybe level of Rs 4,500-4,600 where the entre can be made.Sonia: A quick word on Torrent Power. We briefly discussed that. The stock is now down 7 percent on the back of very weak numbers or at least a big crack in the margins. Is this a stock that you would buy on a dip?A: I have expressed my view that I will not be calling it as a dismal number because whatever the negative has to be seen has seen in Q4. In fact, this is the replica. Q1 is exactly identical number of what we have seen in Q4 and if you recall the stock corrected at that point of time when the Q4 numbers came out from Rs 220 to a level of Rs 180 or Rs 175. So, I do not think that there is any justification for more weakness. Definitely, this stretching of one more negative quarter or bad quarter was not expected or is bad for the share price, but market sometimes, they do give these kind of correction with each negative event happening or each positive event happening.So, maybe the stock seems to have bottomed out. Those who have a longer-term horizon of about six months or so, I hope that Q2 does not turn out to be on the similar line. Company has been a great integrated company having 3,600 megawatts, having good presence in the distribution, generation and everything in 4-5 cities, Gandhinagar, Surat, Bhiwandi, Agra. So, I am quite hopeful on the performance of the company going forward and I do not see any reason for further weakness barring today’s fall of 6-7 percent.Sonia: From the list of stocks that could benefit from the goods and services tax (GST), it is a very long drawn process, but nevertheless, what are the stocks that you would keep on your radar from the goods names like Maruti, Asian Paints, Crompton are expected to be beneficiaries but what are the stocks that you would buy?A: I have seen the expert comments from many of the people, some of them saying that GST will not see any kind of gross domestic product (GDP) expansion, I beg to differ. Expect at least 100 basis point increase in the GDP, that is number one.Number two, the service tax burden will increase on the services. Again, it is a wrong impression, it is a folly to take the interpretation in that way because take the case of Central Value Added Tax (CENVAT), the CENVAT which you will deriving now from here onwards, the GST comes into place. Even the service tax, I agree that maybe a consumer will not be gaining. If you are going into a restaurant, or if you are going into a salon and paying 18 percent -- if I presume that GST gets discovered at 18 percent -- then you may be a loser. So, taking all these into consideration, that is just one part.But if you want me to pinpoint one or two sectors automobile and auto ancillary will be the biggest beneficiary because see the tax burden -- effective tax burden of 22-24 percent for automobile. I am just trying to give you a broad picture. I am not taking a statewise scenario. If you have 18 percent kind of things, you have service element, you have goods element and everything will get CENVAT from here on and even if it is 18-20 percent, if the rate gets discovered, I am not comfortable with 20, that sector will be seen the huge beneficiary.