Mkts ripe for a pull-back, sectors/stocks to buy on dips

Excerpts from Closing Bell on CNBC-TV18 Watch the full show » RELATED NEWS Nifty rebounds in late trade to end flat; IT, metals lead Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty?

The markets started the week on a good note but weak global cues seem to be weighing on sentiment. The big question which is on everyone's mind is where are markets headed and which sectors should one look at now?

Rahul Mohindar of viratechindia.com says doesn't rule out a pullback in the short-term. "Even if it has to go down another 1-2%, I don't think it will ruin things." But in the medium to long-term, he expects the markets to stay trade 50-100 points higher from current levels. He advises investors to use dips to get into stocks selectively.

However, Amit Khurana, Co Head - Institutional Equities Head, Research, Mangal Keshav, says 5,200 is still very much a possibility. But was quick to add that a breakout above that will be a surprise. "The market would be in a range, we see the Nifty range between 4,600 and 5,200 over the next few weeks. I think 4,600 will attract a lot of buying attention, valuations tend to get attractive from FY11 perspective and that should hold on."

Strategies, sectors to trade:
Mohindar is betting big on frontline pharma stocks in the immediate short-term. ""On Cipla, we have a target of Rs 320. Ranbaxy could move to levels like Rs 440." He also likes sugar, which has taken a slight dip today. "One could look at dips as an opportunity to buy. Bajaj Hindusthan is something which could move to Rs 238."

How to play auto ancillaries?
Amit Dalal of Amit Nalin Securities advises investors to look at companies catering to Indian demand. "There is a huge shortage of auto components, and companies providing those components will truly benefit whether they are the small bearing companies or even the ones which makes fasteners. The smaller ones are the ones which will benefit more now."

Connect or disconnect telecom stocks?
Mohindar sees decent price and volume action in telecom stocks. "Both Reliance Communications and Bharti seem to be doing some kind of a base building trick here. A pullback rally in my opinion is on the cards here."

Khurana too sees a pullback around expirty but is cautious on the sector in the long-term. "They could see some action closer to expiry, considering they have seen some significant short position build up over the last few weeks. Closer to expiry they could give you a perk up. Structurally, the sector is going to face headwinds. We are seeing valuations taking a knock on account of that."

Dalal also is cautiously optimistic on the sector. "In terms of valuation, they have definitely reached investment grade levels. If the market is expensively valued, you could find a couple of funds re-allocating money towards telecom stocks."

Buy midcap banking:
Midcap banks can easily deliver another 15-20%, says Dalal. He finds midcap public sector banks trading relatively cheaper to their private peers. "You still get them at 1.5 times books and the growth is there. Credit growth is going to improve in the next two quarters, so you will see expansion of net interest income (NII) which perhaps was not to the extent that I would have liked to see in the second quarter. Results of very large ones like State Bank of India were not up to the mark and the valuation expansion has been considerable over there. I would start moving into the smaller ones which the market has already done to a large extent. But you can get another 15-20% easily from them."

ITeS a better play to IT pack:
Khurana has been cautious on the IT sector for sometime.  He sees potential going forward as the environment turns better for most companies. "There would be some plays on that. Our preference is for the midcap side right now because the valuation gap between largecaps and midcaps is pretty high. So, the midcaps would tend to outperform and that is what we prefer to play on the IT services side."

Fly with airline stocks?
Airline stocks could soar another 5-10%, says Mohindar. However, he is not bullish on the sector in the long run. "If we look at the long-term charts, I don't see this sector really breaking out in a big fashion. Probably, it's only short-term money that is on the table. Even though you have seen decline, its worth getting out because you will see brighter opportunities in other sectors. I would be negative on the space, however there could be a short-term upmove."

However, Dalal advises a strategy contrary to that of Mohindar. "It's a long-term investment play rather than a short-term trading play because this is an industry which has gone through the depths of misery that any sector could perhaps go through. We have seen them go through all kind of problems, whether that was jet fuel prices or lower capacity utilisation and they still came out with the product and service which was above par excellence. If the business environment improves, one could see considerable appreciation over the next one-two years. But in the short-term, it's all about whether they will be able to raise capital, how much capital will they be allowed to raise and things like that."