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SP Tulsian of sptulsian.com feels that considering the fall in the Asian markets, which is confined to about 2-2.5%; more or less it is in-line. For the remaining part of the day, he does not think that damage can aggravate from here on and it should remain more or less in the similar range.

Anil Singhvi of Notz Stucki said, "The headwinds are very heavy. We should not forget the fact that oil is at USD 150/bbl and rupee is again depreciating- depreciated by almost 10%. Trade deficit is earning at about USD 10 billion a month. From small to medium-term markets still look overvalued. Markets would correct further down because of all the external factors and internal factors. So I won't say that this is an opportunity on a day of when one should buy and the markets will look good, I don't think."

Excerpts from CNBC-TV18’s exclusive interview with SP Tulsian and Anil Singhvi:

Q: How have the traders approached the trade today and what are they talking about in terms of levels to watch from here?

Tulsian: For the last couple of days when I had been talking to them, obviously the fear was with the fall expected; the fall of about between 400-750 points on Sensex - I think more or less it is broadly on those lines. May be the fear was more to the extent of, as I said 700 points also. But considering the fall in the Asian markets, which is confined to about 2-2.5%; more or less in-line and we are down by about 3%. So I think for the remaining part of the day, I do not think that damage can aggravate from here on and it should remain more or less in the similar range.

Q: It’s been a rough start to this month what’s your sense of where we might be headed?

Singhvi: I am not surprised by this stock market move for the last couple of months. I think we are trying to now hide behind the oil prices and all that but I think our markets are overvalued. Let’s not lose the sight of that and the markets would correct further down because of all the external factors and internal factors. So I won’t say that this is an opportunity of when one should buy and the markets will look good; I don’t think. We have been in a self-denial mood for a very long time and it’s a high time that we take a call.

Q: How much more downside you think before valuations appear fair from an investor’s perspective?

Singhvi: The headwinds are very heavy. We should not forget the fact that oil is at USD 150 per barrel and rupee is again depreciating - depreciating almost about close to 10%; trade deficit is earning at about USD 10 billion a month. If you look at these broad parameters, the shape of the Indian economy doesn’t look all that good. Small to medium-term markets look to me still overvalued.

Q: You have been on both sides of the fence and the sense that a lot of analysts got after this time’s earnings was that we got away with minimal damage. Do you think in the next few quarters there might be significant pressure on earnings and margins for most corporates?

Singhvi: Inflation is a reality. I don’t think companies have been able to pass on all the increases that they have seen in last about three-six months. Maybe in March we didn’t feel so much of a heat in terms of cost of production going up because of inventories being there and you always have some squeeze of the cost of production.

Going forward, it will be a difficult call and margins will be contracted. I don’t expect that it can come out with the kind of performance what we saw in 2008, which is going to be repeated in 2009. I would be very surprised if we can post very good results in next 4-8 quarters.

Q: How long do you see this painful adjustment phase lasting out here? Do you have a sense of when things could start improving, the headwinds that you spoke about?

Singhvi: There are two factors. First of all this monster call oil prices and if the oil prices are going to remain because we are going to hit the summer now so it is going to be- until August I don’t see oil prices to correct because of summer. Its not again a demand-supply issue I think most of the money has flown into oil. When you do not see stock market doing well, don’t see currencies doing well, don’t see the bonds doing well I think oil has come as a savior for most of the investors.

It is going to remain for a while, oil prices remaining high. I don’t think India has really particularly come out well on this. We haven’t done anything for last five-years in terms of looking at the new sources of oil. We are going to face very difficult time and if we look at the whole political situation, it is deteriorating everyday. We can’t even take a small decision and deteriorate for a couple of months.

When you look at external factors, look at internal factors and not having a political will, I am right now of the opinion that will take a while before we can repair the damage and stock market can look for some very cheerful news, which to answer your short question, it is going to take at least six-eight months; if at all we can repair it.

Q: You run a fund as well and we have been hearing some disturbing reports of about how redemption pressures have suddenly kicked in for lot of these India specific funds, is that something that you are seeing or hearing as well?

Singhvi: It is not a disturbing news, I think it is a very natural phenomenon; people have made money in last three years and it is the right time to pull some money out of Indian markets. Because finally, let me put it very clearly that I don’t think money has any emotions. So long as you make money, so along as you think that fundamentally markets are looking strong you remain invested.

Today when you see that our corporate earnings are going to be low, markets don’t look fundamentally that strong, political will is not there - I don’t think money will remain here. So I am not disturbed, neither I am concerned about this. In fact, our advice to some of the fund investors was that they should pull money out of India.

Q: Which sectors do you see has the most or the highest possibility of valuations contracting further from here?

Singhvi: I think that those which are energy intensive; those which are labour intensive because they have increased the cost of wages to a very large extent and to some extent I think the manufacturing sector will be much more hit than the services sector. So across the board, I see manufacturing sector finding it very difficult going forward.

Infact we have become a very high cost economy. I think people have not paid attention to it, in the last two or three years because of the hype which was created, the cost of doing business has gone up many fold and if we do not have enough room to increase prices; I am sorry to say this but I think we are going to be completely caught up on a negative surprise.

Q: Didn’t mention real estate in that list?

Singhvi: Real estate of course you have been asking this question for all for almost about last one-year, I am not convincing a buy at all or ever on the real estate play. People were talking about NAVs, which were inflated NAVs and all that. Real estate is another class of asset, which will correct very sharply. I ‘want to put my neck’ on this that it will correct very sharply. There is a huge bubble building up there.

Q: What’s a fair kind of level for the market for you now, you think?

Singhvi: It will be difficult to put a number of 13,000 or 14,000; I will be stupid to put that call. But our markets need to be corrected little more before they come to a realistic level. Would they be coming to a level where it becomes very tempting to buy, my answer will be no. Because we need to see how six-eight months political situation pan out, oil prices pan out, trade deficit, which is becoming like a monster had not been the situation of last two-three years of a good economic growth, I think would have been into same situation of 1991.

Q: Lot’s of chhota (small) Initial Public Offering (IPOs) have opened the first one is the First Winner do you like the story there?

Tulsian: You have rightly put it that chhota IPOs (small IPOs) are coming because the badda IPOs (big IPOs) have no guts and courage to tap this capital market because of their plans of having or the drawing boards that they have done the calculation at a very stiff pricing.

Coming on the First Winner; it's a pure textile story. Their weaving capacity has gone on swing just last year and may be because of the working capital pressure, its entire capacity is being used on the job work basis and that too at a capacity utilization of close to 51% and it is very strange to see the companies going into further expansion. Right now they have about more than 100 handlooms and they are adding on about 60 handlooms further, they are also putting a stitching capacity of about 5,000 shirts per day. Already we have seen the fate of all the textile stocks, the leading one which are into the integrated, having their weaving capacity, processing, dyeing and all sort of things are not doing well. They are ruling at their IPO price of about may be 50% or may be 60% with a P/E (Price-Earnings ratio) multiple of 4 to 5.

I am not here to take a call on the P/E basis for this IPO, which would be any where about 25-30 times. So the call is that it is a very aggressively priced issue; no questions of giving any thoughts, clear skip for the issue.

Q: What about Sejal Architectural Glass. How do you rate that one?

Tulsian: I would say that project is very interesting. They are going into the float glass, which is on gas base; they have tied up the gas at USD 7.5 per million British thermal unit. They have this sand supply, which is a critical raw material they have this soda ash availability in the region because they are setting up their project in Dahej. See the promoter’s background - they have all along been into trading, they have been procuring float glass from outside executing the main direct contracts as well as the sub-contracts. Now they are setting up a project of Rs 480 crore of which about Rs 320 crore is debt with a clear-cut debt-equity ratio of 2:1. Definitely the listed peer is float glass, which is in fact their feedstock is naphtha so they are not able to make a good profit. Their profitability has been taking a hit. But unlisted stock the Gujarat Guardian Ltd they have been doing quite well.

When you compare with the listed peer definitely you get a scary picture for the industry inspite of having the good future ahead of this sector. Promoters capability could also come into the way because Rs 320 crore debts, Rs 160 crore financing of which about Rs 100 crore odd is coming from the IPO, I do not think that financial structuring is really very healthy. Any delay in execution or any non-establishment or not settling with the production could really spoil the financials of the company and even if they incur a loss of Rs 40-50 crore in the first year. The whole projects can start facing problems.

It’s a very risky venture inspite of having the project potential. But again the question comes is of the stiff valuation probably at Rs 60-70 share would have been an attractive investment leaving some room for the prospective investors who make money but not at Rs 100 or maybe at Rs 110.

Q: What about the third one Avon Weighing Systems?

Tulsian: I think the promoters have understood the present state of the market. So straight away they have gone with the price tag of at par, inspite of the book value of the share at Rs 120. The company has been all along marketing the electronic weighing scale of two Japanese manufacturers and having gained the marketing experience, having gained the feel of the market for the last six to seven years, now they have started or thought of venturing into the production of the weighing scale setting up a unit in Himachal Pradesh and it is a very small project of about Rs 40 crore.

But if you see the equity of about Rs 17 crore and the project financing, probably at par looking to the book value of Rs 20 as on today, and the experience of the promoter at least one could take a chance though the expectation should not be too high because this is a typically a macro-cap company with a expected marketcap of about Rs 30-40 crore. But if somebody has to see the downside, I do not think the share price can go below Rs 10, you can have the chances of making 20-30% profits on listing or may be even if you remain invested for couple of years into the stock.

Q: We are now hitting the lows for 2008 at 4,450 Nifty and 15,000 Sensex thereabouts. You speak to a lot of people in trading markets like Rajasthan, Jaipur etc. What’s the sense you are getting? Are traders beginning to lose hope? What feedback do you get from those markets?

Tulsian: In fact, in Gujarat and Rajasthan as you have rightly pointed out, they have all become more of the trading oriented. None of them have any investment appetite they are not prepared to hold the stock even for month also. If you have that kind of mind frame this is definitely not the time. On the contrary you become impulsive when you see these kinds of movements. They create the overnight position thinking that probably shares have touched their low they take a long position. But I do not think that here the problem is more of the trading or the leverage position because that has not been seen at a very high level. Of all these things are within the reach of the traders and all that they cut the losses very swiftly on an intra-day basis or a maximum on couple of days.

The problem lies more into the delivery-base selling which no one is able to take a call how much correction it can really cause to the share price. So even the traders are most confused. They are also sitting on the fence they trade into the market of a very low quantity because it has become compulsive for them to remain active in the market or compulsorily they feel that they have to trade something it is on a very low scale. So they are not losing as heavily as they have lost in the month of January.

Anil Singhvi Disclosure: It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.

SP Tulsian Disclosure: I do not have any interest in the IPOs commented upon.

Source: Moneycontrol.com