SMALL AND MID CAP COUNTERS WERE HAMMERED PROBABLY DUE TO THE FEAR OF INCREASE IN THE COST OF FUNDING  &...

Mr. S P Tulsiyan and his statements on Small Caps: An Analysis...

Yesterday, Rakesh Jhunjhunwala's A2Z MAINTENANCE & ENGINEERING SERVICES LTD made 52-week's low, which rang alarm bells in the bear infested Dalal Street.  Many market-men have given explanation to this fact, but one of the most weirdest came from none other than Mr.S P Tulsiyan, a popular investment analyst hopping across business forums and channels, especially CNBC TV18. Many investors have a habit of investing in any share which has the "divine" touch of Mr.Tulsiyan, who apparently has solutions to all your problems in share market, how much Utopian it may be. Therefore, let us examine him, in view of his latest comments on the movements on some small cap counters, which Mr.Tuslsiyan says is due to "Operators moving out of them". But strangely, Mr.Tulsiyan failed to define what he meant by an operator and if the operations carried by operators are legal in the Indian bourses. 

But before that let us focus on his outrageous comments on the small cap counters. This is what he said, to a business channel yesterday,(without giving more convincing reasons for the fall), which precipitated the fall  in the small cap counters, which is most unfortunate. I had a touch time yesterday, speaking with clients who were worried with their investments in this space. Why? Courtesy: Mr.S P Tulsiyan's irresponsible statements on a Television Channel.  
According to him, "I don’t think operators have the strength to pump in more money because they have already exhausted their cash resources. We have seen operators getting tired and since the carnage of US and Europe I don’t think there is any strength left with them, either of the funds or of the market operations. In that event the financials will really be compelling upon them to liquidate and release their payments. So only thing it needs to be seen whether they expose themselves or they try to salvage, there are no chances of any upside. All the traders trying to identify the lower levels in case of the stocks like KS Oil or Karuturi should really avoid taking call on these kinds of stocks".

This is the kind of statements Mr.S P Tulsiyan is famous for, and which go unnoticed when the stock price moves up.

Now before going for a full fledged discussion let me say, if  Mr.Tulsiyan, knew who the operators were then why did he not complain to the specific authorities, giving the proof of the stock price manipulation? Also, on what basis does he say that some stocks are moved by so and so person? A person  having love for some stock does not automatically become an operator. Right? So, what is the basis of such horrendous statements in front of television cameras? Also, if we assume that Mr.Tulsiyan is speaking based on truth, then instead of coming up with such wild allegations against some persons and groups, he should have complained to SEBI or the respective stock exchanges for price rigging in the scrips.Isn't it? If he has not done that, should we believe him? 
Any logical conclusion would say, NO, because Mr.Tulsiyan knows that, in bathroom all are naked, but it is only those, whose walls are transparent, gets noticed. 

Now let me show you how honest is Mr.S P Tulsiyan in his utterings in front of Television Cameras, which many people (investors/traders) take as face value.

Let me now talk of one such stock, named Reliance Industrial Infrastructure Ltd. Reliance Group has always been his "Pet animal" since a long time, though this group has been notorious for all sorts of manipulation both inside the market and outside. 
This stock (Reliance Industrial Infrastructure Ltd) from the Mukesh Ambani pack, suddenly rose from Rs.318 on 2nd April, 2009 to Rs.820 on 9th April, 2009---in three trading sessions it rose by whooping 158%.  

Observing this, one of Mr.S P Tulsiyan's patrons, CNBC TV 18 called him up on 12 or 13 th April, 2009 (don't remember exactly), to give explanation, when he said, "However, it is learnt that RIL is planning to make RIIL as a gas carrier & distribution company. Reliance Gas Transportation Infrastructure Ltd. (RGTIL) is a closely held company of Mukesh Ambani, which had put up 1,400 kms., 48 inches diameter pipeline from Kakinada to Bharuch, capable to transport 120 mmscmd of gas , having set at a project  cost of Rs.15,000 crores. The present paid up equity of RGTIL is at Rs.700.05 crores with face value of Re.1 and are presently held by 6 private limited companies, with each company holding 1166.75 million shares. In addition to this, it has Preference Share Capital of Rs.330 crores, with face value of Rs.10 each. This company is capable to generate revenue of Rs.700 crores, if we presume a transport of 80 mmscmd at US$ 0.13 per mBtu.

Apart from this, RIL has plans to set up gas pipelines in various parts of the country, originating from KG Basin, as also to take up gas distribution for domestic households in over 150 cities, of the country. It is learnt that the Group is contemplating to bring all this pipeline network and business into RIIL, with a view to attain leadership in the sector. This move was also expected in the past, but got deferred due to delay in gas production by RIL from KG Basin. It is learnt that the Group is contemplating to bring all this pipeline network and business into RIIL, with a view to attain leadership in the sector. This move was also expected in the past, but got deferred due to delay in gas production by RIL from KG Basin.

Maybe now, if this gets implemented, RIIL paid up equity, which is now at Rs.15.10 crores may get raised to Rs.100 crores with promoters holding of 90%, which is allowed for an infrastructure company. The whole exercise is aimed with a view to raise US$ 2 Billion for new projects. This will be possible only if RIIL has a mega size of projects coupled with respectable market capitalisation".

"RIIL has a market cap of Rs. 1,240 crores, inspite of recent surge in the share price, which is not befitting to the level of RIL Group. So, if these plans are required to get implemented. RIIL must become a $4 billion company in terms of size of assets and market capitalisation".

"We hope that these expected plans are implemented by the Group this time for RIIL and not to indulge in market operations again"--this time the sword is on perhaps senior Ambani.

But again, around a couple of years later, on Mon, Jun 13, 2011, Mr.S P Tulsiyan states, the following regarding the same scrip, Reliance Industrial Infrastructure, "Reliance Industrial Infrastructure can move to anywhere between Rs.750 to Rs.1,000. The stock of course made 52-week low on 17th August, 2011. 
So should we now conclude that Mr.S P Tulsiyan was the operator in the stock? 
Anyway, let's dive a little deeper and observe his statements on a scrip, listed in Bombay Stock Exchange. Mr.Tulsian told CNBC-TV18, "Reliance Industrial Infrastructure is a company belonging to Reliance Group in which Reliance Industries is directly holding 45.45% stake. This company came into the fold as promoter by Reliance Industries about 5 to 6 years back. Since then there has been the flat performance. This is because the company is owning about 56 kilometer pipeline which transports the crude from Chembur to Patalganga. That is the reason why the company identical top-line and bottom-line with EPS close to Rs.15 every year. This has been lying low with market cap of less than Rs.1,000 crore. There have always been expectations that this company will get activated by Reliance Industries. The value accretion game may start because the company which belongs to Reliance Industries with market cap of less than Rs.1,000 crore cannot remain at those levels. The trigger has really started, we have seen that Reliance Group has acquired 74% in Bharti AXA Life and Bharti AXA General Insurance with 17% having acquired by this company. This company presently has networth of about Rs.200 crore of which about Rs.160 to 170 crore is laying as cash in bank balances with the company.

He further added, "The process of putting in other businesses in the company has started. If insurance may not come in a full fledged way we will see these kinds of new businesses coming into the company. I am quite hopeful as a value creation game by the group. One does not know maybe the similar other projects can come in a smaller way. That is the reason, with EPS of Rs 15 that translates into a PE of 30-35 which the share has been ruling for ages. For years this has been ruling at 30-35 mainly on this hope. The hope of this has started with the 17% stake of Bharti AXA and I hope that this can really be a big trigger for the company. Going forward if somebody can keep a view of about one year share can move to anywhere between Rs 750 to Rs 1,000 I am giving a broader range so that is the trigger."

NOW THE TOTAL SCENARIO HAS CHANGED GIVING WAY TO A NEW CANVAS--TALK OF “RIL is planning to make RIIL as a gas carrier & distribution company” has suddenly vanished from our vision. 

So, these are the kinds of predatory analysts we have on television channels these days. They are always bent on showing themselves as "Holy Cows" while criticizing the others to the lowest common denominator. Therefore, always do your own research and never ever invest in any company, based on the recommendation of these analysts who come up on Television channels and give lectures on buying or selling scrips. 

Anyway, shifting topic I think it is high time the government, should do something, to stem the tide in the small and mid cap counters and Indian Capital Markets in general.

But much of it is due to the reckless rate hikes by the morons in the Reserve Bank of India, who wants to kill the golden goose of India Inc, by starving them of the required cash.

Moreover, how can the small companies go for the ECB route to raise capital?? So, from where will the cheap credit come to the India Inc, for the SMEs....!! Does the government not understand or they are busy making money for themselves, while the Roam is Burning.........??!!

Earlier, the Indian rating agency CRISIL had cautioned that the primary impact of the US downgrade could be felt on the availability and cost of funding, both in domestic and international fronts.

The spike in uncertainty in international markets following a downgrade of US sovereign debt by rating agency, Standard & Poor’s is expected to force Indian companies to put in their foreign fund-raising plans on the back burner or slow down their capexes. Some companies have already done that and some are contemplating on the same. So, the demand pull inflation could increase further, as the RBI bosses goes in for rate hike sprees.

Further, even the borrowing cost might also go up. While the foreign debt had been cheaper than domestic debt (for India Inc), but now with the US treasury papers themselves witnessing a higher rate, the borrowing cost is bound to get expensive in future, as international bonds are linked to US treasuries.

Therefore it is already a bad news for the fund raisers, at a time when domestic credit is unviable or is very expensive; thanks to the RBI's strict monetary tightening, foreign money is now probably, the only recourse. The latter has been at least 5-7% cheaper than domestic debt and the hedging costs have also been low.

But the question is: is it viable for the SMEs to go for the ECB route to raise capital--doubtful, except may be through GRD or ADR...!!

While the same may get evened out in the long run, the short term pain itself could be very taxing for companies, especially in the SME SECTOR, that are heavily dependent on leverage.

What is interesting here is that the notion of "cheap credit" is slowly getting phased out, in an environment of harder rates, both in the domestic and international fronts. This is expected to bring in more rational re-pricing of risks and more optimum allocation of funds in future....

Besides this during any recession (or fear of slowdown), it is the small cap companies who suffer the most than the large caps; which could also be a possible cause for selling in the small cap counters. Calling them operator based manipulation is just a one side of the story or in many cases a misnomer.