See Nifty at 9300 in 2-3 months; buy RIL, SBI on dips: Pros

Advani says investors should look at buying stocks such as State Bank of India or Reliance Industries on dips.

Below is the edited transcript of Pashupati Advani and Jai Bala’s interview with Anuj Singhal and Reema Tendulkar on CNBC-TV18.

Reema: What is your sense, 8,400 is seen as a resistance level for our markets, do you think we have the momentum to move higher?

Adavni: As Anuj just mentioned with the Chinese sell-off in the last two days, the function is going to be whether that money comes in here or whether we start participating along with China in selling off. I actually think that we will get some flow into here but it takes a little time because people first come out of China and then they decide whether they are going back into China at lower levels or then whether they are going to push it.

Anuj: Would you say that at least the market has now established a firm bottom somewhere around that 7,900-8,000 mark because we have gone there twice and both times we have seen decent bounce back?

Advani: It looks like that is what is happening. What is also happening is that we are seeing a lot of inflows not so much in foreign institutional investor (FII) but in foreign direct investment (FDI) and that is permeating through in the market particularly in the form of the e-economy and then this new economy as they call it. They are getting money, they are getting valuations and whatever it is, it means that India is on the map for certain things. The hard industry’s tyre is still taking a break because we are not seeing much traction but there is a lot of inquiry. The minute the economy starts to move off the bottom, it will happen. Things like the smart cities initiative and things like that would be part and parcel of starting the real economy, the hard economy going.

Anuj: Technically do you think the market has made what a lot of people call the double bottom at 7,900 or would that be too simplistic right now?

Bala: Just a couple of weeks I had said that the market sentiment towards India was one of the lowest amongst the global macro that I track. Even if the Nifty were to break 8,000, it is not going to go down as many of them were anticipating. So, that is exactly what has happened. When the market went below 8,000 everybody was expecting the market to go down to something like 7,500, 7,000 and even 6,900. For me to get the message from the market that the market is actually put in a bottom which is going to hold, I want the market to take out 8,490 to 8,510.

Once it does that, it is more or less certain that the market’s bottom is in and it is heading towards record highs which I have been projecting again for the last one month or so plus. We are looking at about 9,300 for the Nifty from a two to three months timeframe. So, 8,490-8,510 is a very important level for the market. What I want the market to actually do in the short-term is to pull back to somewhere close to 8,310 maybe even 8,240. Now that will be a sizeable correction for the short-term move and then if it takes out 8,490 it will be a very good base for the market.

Reema: Given the internals you would bet on the probability of the Nifty taking out those levels that you were pointing out, 8,490-8,510 and head towards our all time highs?

Bala: That is my preferred scenario but the market is the ultimate boss. What my opinion or somebody else’s opinion is, is immaterial. You want the price to take out important levels. Once that happens we can be sure that the thesis with which we are proceeding in the market is correct.

So, let the market tell us once it takes out 8,490 and we can be sure that the bottom is in. So, there is a very good probability of market taking out 8,510 in the short-term; let us see what happens.

Reema: What are the key levels on the Bank Nifty now?

Bala: The Bank Nifty is starting to look a bit more stronger than Nifty. Looking at the individual constituents State Bank of India (SBI) seems to have had a bull trap. The important support for SBI was Rs 255 and it went slightly below that trapping a lot of base into shorting the stock and then it is now trying to stabilise above that key support. If the stock were to trade convincingly above Rs 275-280 for the next two or three sessions, I think it is heading somewhere close to Rs 350. As an extension the Bank Nifty would be taken somewhere close to 22,000-23,000 from a two to three months timeframe.

Anuj: What about the leadership for this market now, we have seen quite a bit of short covering bounce which was quite narrow in nature, we are three or four stocks accounting for the bulk of the rally – Larsen and Toubro (L&T), Reliance Industries. Going forward what sector or stocks do you think are prime to take leadership position?

Advani: The big index weights are the banks. You mentioned about Bank Nifty so they have to lead the market. IT has also got a solid base but I am not as bullish as people are on IT because the earnings are going to be a little bit disappointing and that is what is going to stop the market from going to these heady levels at this point.

So, the market will keep floating between 8,000 and 8,400-8,500 and then you will have opportunity to buy. Once that comes then the market is free to move but that is at least a two to three month scenario. I don’t think we are going to 9,000 in a hurry.

Anuj: In terms of stocks that you will buy once the time is right what would be on top of your list?

Advani: Everything that comes on dips, if you know as SBI comes down to Rs 255 again and the market is down at 8,000 you will see these prices again and maybe Reliance comes down to Rs 950 or Rs 925 people may take it. Speaking about Reliance one of the issues is, it is quite under owned being the largest company in the index. Since it is under owned by most of the funds the only money that is coming in to Reliance in any serious way is the ETF money and that is growing in the US and in Europe also. A lot of money is coming in to emerging market’s ETF so that is going into Reliance because it looks like it has to catch up as it has been between Rs 900 and Rs 875 and Rs 1,000 for the last five or six years. So, it looks like the stock that hasn’t performed so the ETFs have gradually – the shadow ETFs are going more into it and you are getting a larger position.

Anuj: Reliance, we have discussed it so many times. Every time the question is that is it finally coming out of this trading band? Is it finally ready to take leadership and every time it flatters to deceive? Every time my question is this time different so I am asking you again is this time is the move different?

Bala: That is the most dangerous question. I wouldn't want to answer that but I would say where the stock is actually heading. Couple of weeks ago when Nifty was trading much lower and Reliance was trading at Rs 900 the tape was giving a very important message that it is going to take out Rs 1,060. I had altered the viewers regarding that but it is exactly doing that. Rs 1,060 is going to be very important. May be the market will give you the message once it takes out Rs 1,060 probably it is heading higher and Reliance could probably take leadership once it crosses Rs 1,060. The next resistances for Reliance is above Rs 1,060 and until that it will do sort of positive price action from hereon. I am positive on Reliance but not overly positive let the price action tell us it is going much higher.

Reema: IT stocks were under performing for the last two weeks. They didn\\'t participate when the Nifty moved from 8,000 higher to level of 8,400. On Friday's trade we saw considerable strength in many of these IT names like Infosys, HCL Tech would you be convinced about an up move taking place in IT stocks?

Bala: We need one or two more sessions for me to get convinced that IT sector is heading higher. As I mentioned couple of weeks ago the IT sector has gone through a full lifecycle of an up move from the 2013 lows. It could be bound for a sizeable correction. It does look like it is going to extend further and head higher. Infosys is giving a very positive message but let me just wait for one or two more sessions of price action to come through from rest of the stocks like Tata Consultancy Services (TCS), Wipro and HCL Tech. It is looking positive at the moment but I want further confirmation from the market.

Reema: Coming to the banking space, in particular the PSU banks, we got the financial stability report and that is suggested maybe the asset quality stress is only going to get worse before it gets better in fact they have projected gross NPAs for PSUs to hit levels of 5.6-5.7 by March of 2016. What is your sense about PSU banks, if someone is an investor what should they do and which stocks will be attractive to accumulate?

Advani: I think it is going to be very difficult to choose which of the PSU banks. Obviously the big ones which are in the indices like SBI and Punjab National Bank (PNB) and Bank of Baroda (BoB) are in one bucket.

However, all the others, it is like you are going to have five new bank chairmen coming into the space, how they are going to direct it, how are they going to approach the NPA problem, what pressures are coming from the RBI. However, frankly if you like that sector (I don’t particularly like that sector) then you would buy all of them because they are there to stay, they have got rural reach, they have got some things at matter. However, I don’t think it is ready yet because as you said, the NPAs look like they are going to be higher.

Anuj: What is the biggest risk to this market now? Is it global in nature whether in terms of collateral damage from Greece or falling in sympathy with China or is this more domestic in nature. We will head into an earning season and again hopes are not great so what is the bigger risk?

Advani: I have always believed that liquidity is what drives this market and I think that our earnings even if they come out passé it is not going to make a difference to the overall market because so far we are seeing little bit of domestic flow but not a serious amount. From overseas the collateral damage could be good, could be bad. There is a thesis that people have been selling emerging markets but that is a dumb theory.

Anuj: From the Index stocks you like Bosch?

Bala: It is more to do with the CNX MNC Index. There it is looking very interesting at this point of time. Within the MNC space a number of stocks like ABB Cements and Bosch are looking good but the lowest risk-reward seems to be with Bosch. It has had a sizeable correction from Rs 27,000 to slightly below Rs 20,000. That is a good correction for the long-term. The next leg of the up move as already started. The stock is getting somewhere closer to Rs 28,000 plus. If we were to place a stop below the June lows it offers a very good risk reward potential for a price subject to above Rs 28,000 plus.

Reema: Anything that looks attractive to you in the midcap space?

Bala: There are number of midcap stocks that are looking positive. The midcaps segment seems to be getting a lot of action and that is looking very attractive at this point of time. If you look at something like India Cement and JK Lakshmi Cement both are looking quite positive. JK Lakshmi is a top pick for me. It is head somewhere from Rs 475 to 520 and it has put in a very good bottom around Rs 305. That is going to hold. If the stock were to trade conically about Rs 350 the bottom is in and is heading somewhere to Rs 475-520 as you said earlier.

Reema: In which stock would you recommend lightening positions ahead of the earning seasons which is expected to be as bad as what we saw in quarter gone by?

Advani: Enough IT has moved up and the rupee looks like is getting weaker I don’t thing companies have actually changed their model and that is going to show up in this first quarter results. They are all juggernauts. So how they change their model-- the Accenture and the Cognizant eating into the space of higher value ad so which ever our companies are able to move into that space and capture the business that-- is critical. I want to lighten up on IT, into this rally, if you want to call it.

Anuj: What about pharma is it getting its mojo back especially stocks like Sun Pharma and may be couple of other or is this still an avoid?

Advani: I like pharma because I feel that we are generic kings of the world. That will continue and I feel as western countries want to lower their health cost we are standing to benefit certainly in the drug space. Sun Pharma is overvalued but they are out there. They are improving their efficiencies. They bought Ranbaxy which gives them automatic entry into the United States. I believe they have cleaned out their factories and they have got new machinery so that they will pass out all the test with shining colours which Sun has never had a problem with. Whereas Ranbaxy’s had a problem so they are doing a total clean up. You will see that, it may take a year or two to see the real value but it looks like it is going to happen.

Anuj: technically how Sun Pharma shaping up because from Rs 1,200-800 and now we have seen some sense of life in this stock?

Bala: It has done with its correction and it is getting ready to move up in the next trading cycle. It is looking to go back to the record highs at least if not new record highs but more than Sun Pharma I am positive on Cipla. Cipla is looking much more stronger in relation to Sun Pharma. You can either do a pair trade on long Cipla and short on Sun Pharma or you can just make it long on Cipla. It is said to cross Rs 800 plus in the medium-term. Bottom is in for Cipla.

Reema: What about midcap themes like logistics, defense? There were seen the sunrise sector just may be 6 months ago now in the last few weeks things have gone quite in them is it a good time to accumulate any stocks in this sectors?

Advani: It is a good time in a sense that these stock will take off but what is actually happening is that they have not seen the traction. We have seen e-commerce but it is not really making these guys spend on capex and taking out more warehouses and buying more trucks. There is a bit of lad effect and therefore they have floated back off their highs and therefore that sector is definitely worth looking at because e-commerce is definitely here to stay.

Reema: For the next week just for the near term which stocks are looking attractive to you anything else that you would like to recommend?

Bala: If you look at another stock in the midcap space, LG Balakrishnan and Brothers looks quite neat and it is heading to Rs 900 plus in the medium-term. In the short-term we could see a spike of 10-12 percent. That is the stock for me if I had to trade in the short term.

Anuj: You don’t normally talk about the stock but if you were to bet one stock from hereon either the safe largecap or the high beta midcaps what would that be?

A: The place to be is the cement sector and I would probably choose one of the large cement companies like ACC or UltraTech Cement because they are just going to continue to build up and build a way and whoever gets the project, they have to buy cement and these are the kings of that market. I would just pick one of those.