>STRATEGY: Which stocks to buy now?

■ Buy under-valued, under-performing stocks
Given the pace of the rally, we believe the market is vulnerable to a correction. We believe even if the market uptrend continues, the outperformers may see some rotation. We, therefore, screen for stocks that have under-performed the current rally and are cheap relative to their history as a means of identifying ideas for investors. Some of the large cap stocks that look attractive on this screen are Reliance, Zee, BHEL, Sterlite, Wipro and Maruti. These are not necessarily stocks on which our fundamental analysts have a Buy rating currently.

■ Stocks vulnerable to a correction
Similarly, stocks that have outperformed the market sharply and are expensive relative to history are most vulnerable in a correction. As expected these include many stocks in the financial space like SBI, ICICI, HDFC Bank and HDFC and other large cap names like Bajaj Auto, Ambuja Cements, Bharti and ONGC. Similar to the list above, these are not necessarily stocks we are negative on from a fundamental point of view but stocks that tactically could under-perform in a market correction.

■ Other stocks that have under-performed the market
For the purpose of identifying laggards, we have taken the base as the market lows in May, 2010. The market has bounced over 20% from these lows. Other stocks that have lagged in the rally include Lupin Labs which is one of our preferred stocks. On the other hand, we continue to like stocks like Tata Motors and United Spirits that have been sharp outperformers in the rally.

To read the full report: INDIA STRATEGY