Which sectors will outperform in a pullback rally?

RELATED NEWS European woes drag Nifty down 2.6% this week; RIL dips 5% Why Deutsche Bank prefers India over China? Policymakers try to calm markets after euro sell-off Where will the Nifty find a bottom? ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

Parag Doctor of Chartadvise sees the Nifty, at most, drifting down to 4,650 levels. He advises investors, who may have missed the early part of the bull market, to use these dips as a buying opportunity. "For those sitting on sidelines, this is an excellent opportunity to get into stronger sectors like autos, pharma, FMCG and IT and build their positions for a rally backup to at least 5,000 levels."

 

Sudeep Bandyopadhyay, Group President, Financial Services, Spice Group, says if Greece fails in meeting its obligations, the impact of that will definitely spread to Spain, Portugal, and also some Baltic Countries.

 

Here is a verbatim transcript of their exclusive interview on CNBC-TV18. Also see the accompanying video.

 

Q: What is your sense right now? It has been a synchronized down move over the past one week. All global indices are breaching their 200-day moving averages. What essentially is your prognosis now: break them and go much lower or could this be a possibility of a bounce back now?

 

Doctor: We are a percent from the 200-day moving average. This long-term kind of support does give a very strong rally from these levels. I expect 4,650 at the most. We go back to 4,550, which was the November low, and from there we should have at least a 10% rally. This should correct the entire fall from 5,300. Probably, we can go back to 5,000 levels at least.

 

Yesterday, we had some kind of a capitulation bottom in place with 40 out of the 50 Nifty stocks on the downtick. Generally, these kinds of panics are used by institutional investors to mop-up large quantities of stocks which they like. As we have seen in the past, bull market corrections are in the range of 10-12%. I would start getting worried if we trade below the 200-day moving average for more than 10 days on the trot or we fall 5% below the 200-day moving average which is around 4450-4500 mark. That would be a red flag for the bull if you start trading below the 4,450 mark for a period of time.

 

I think this decline has to be used as a buying opportunity for the guys who missed the early part of the bull market from March to May-June. For those sitting on sidelines, this is an excellent opportunity to get in to stronger sectors like autos, pharma, FMCG, and IT and build their positions for a rally backup to at least 5,000 levels. We will change our mind only below 4,450 levels. Then, people will probably start looking at 4200-4300 levels which was the top of the gap which was seen in the markets post elections. Till we hold the 4500 mark, one should not get unduly get worried about this particular decline.

 

Q: How would you look at all the indices at this point? What is the interpretation or premise on which you are beginning that this was a correction across the board or is the deficit problem in the US and Eurozone going to take a larger toll on markets?

 

Bandyopadhyay: The issue which is there in Greece and to an extent which might spill over in Spain, Portugal and the Baltic Republics is the matter of huge concern. As far as the international investors are concerned, Greece is of the verge of a financial disaster and there is a whole lot of uncertainty concerning how the situation will be salvaged. One must remember the peculiar situation in which the European economies operate, particularly those which are a part of the European Union. When we had crisis in Iceland they approached IMF and Russia for help and somehow they were able to very well salvage the situation.

 

But let us understand what's Greece is position today. Greece is a part of the EU. It is very much integrated. There are supposed to be directions and funds from ECB, they cannot go out and approach IMF or other countries for borrowings and lending. So, they are stuck now. The European Central Bank wants to enforce some discipline before Greece is provided any support. That discipline cannot be re-enforced under the current political situation in Greece. There is a huge amount of chaos and investors are loosing patience very clearly. If Greece fails in meeting its obligations, the impact of that will definitely spread to Spain, Portugal, and also some Baltic Countries.

 

Obviously, countries like Germany and France which have heavy investments in Baltic banks get impacted. There is a huge international crisis which can start. The EU cannot let that happen because if that happens the entire Eurozone economy will become a complete mess. So, the ECB will have to step in and salvage the situation. Late yesterday, somewhere in the mind of the investor they realized that the collapse of Greece is not a certainty, probably not even going to happen and they need to take corrective action.