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INVESTORIssue 3 GUIDE

Investor Guide
January 2011
Being rich is having money; being wealthy is having time Margaret Bonnano

Five Mistakes to Avoid In 2011

Eventually each portfolio needs to have a theme based around the investor's own world view relative to the world. Your personal optimism (conviction levels), your savings situation (determines time horizon and risk appetite), your style of investing (long term or speculative), your own job profile (exposed to a particular industry or asset class) etc all should go into how your portfolio should look, apart from the 'expert' advice that you are dished out from time to time. Here's a list of 5 mistakes however that you should avoid irrespective of how you create your portfolio and which market gurus you follow.

Inside This Issue

1 Five Mistakes to Avoid In 2011 2 7 9 PINC Power Picks Consensus Opinion Multi Asset Structured Product 10 Gold continues its Upwards March 11 Where's My Money! 12 Expert Speak : Mr. Sandip Sabharwal 13 For Good SIP Returns Choose a Volatile Fund 15 Tactical View for January 2011

Have a portfolio that doesn't keep you awake at night

You shall never be able to time markets most of the time and therefore there is no point investing into a portfolio which you think should outperform in the very short term. If you have some sharp ideas however, limit their exposure in your overall portfolio so there is no over dependence on this performance.

Take expert forecasts with a grain of salt

Most experts have a world view depending on their own limitations and views of armies of analysts. This may or may not necessarily and has the additional risk of changing from time to time. Remember how many analysts were in the media this year suggesting a sharp decline middle of the year, recommending long term bonds and so on and suddenly disappeared when the US suddenly decided to turn around and spook markets into a retracement. Eventually , have a blend of ideas in your portfolio so if you go wrong on one, something else compensates. And select good companies so when the 'top down views' are hedged, you get the premium from the performance of a good company.

Never confuse the unlikely with the impossible

No one thought 10 years ago Crude could ever go to USD 150 or that institutions like Lehman and AIG would collapse. Eventually, each corporation has its own Achilles hill and there are a lot of market forces that collude to first raise and then decimate stories. Watch the broad data carefully and keep potential exits or entry points in mind. So if you start hearing of 'impossibilities' , think again!

Never confuse a trade with an investment.

The right time to buy is when an investment is being overlooked and available cheap it takes time for it to bring money in but then, the potential returns make up for the lost time. Don't overburden your portfolio with 'smart ideas' that are nothing but momentum trades which may or may fire and someone else desperately needs a buyer for. Blend your portfolio well so you have both kinds of ideas running in your portfolio review trades regularly and keep adding to investments.

History is irrelevant
Just because a scrip traded at a particular level some time ago doesn't give it the right to be back there again. The world is changing rapidly, regulations are driving differential economics and resources are becoming scarcer- and therefore individual companies who had substantial hold earlier in their market spheres are facing a dramatically altered world where their existence may be challenged. In some areas like technology, this is evident immediately while in other industries like FMCG and Pharma, these challenges may be less evident in the short term. Dont make the mistake of missing the broad trends that are shaping industries and therefore, dont make the mistake of assuming history will repeat itself. When an investment sounds at odds with the above five principles, be merciless and exit it without remorse. Holding something that you will not have conviction in , based on your own selection of investment principles, is an investment you should not be making.

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INVESTOR GUIDE

PINC Power Picks

Apollo Tyres: BUY, TP- ` 97
Whats the theme?
Lock-outs at Apollo Tyres' Cochin facility and Dunlop (South Africa) operations took a toll on its H1FY11 results. Further, high natural rubber prices impacted margins. Rubber supply has been disrupted due to unseasonal weather in India and South East Asia, driving prices to an all-time high of ` 200/kg. Domestic tyre manufacturers have undertaken 3-4 rounds of price increases and another round is expected soon. The demand momentum is expected to continue, however ability to take price increases seems to be limited.

What will move the stock?

1) Re-rating of the sector on the back of radialisation in the truck-bus radial (TBR) segment. 2) Ramp-up at the Chennai facility and commencement of production of TBR tyres. 3) Correction in natural rubber prices due to production growth or reduction in import duty on natural rubber as demanded by the tyre industry. 4) Germany, the largest European automobile market, passed a legislation making it mandatory for motorists to use winter tyres. This will benefit Apollo Tyres' European subsidiary, VBBV, which specializes in this segment. With cold weather conditions becoming severe across Europe, demand for winter tyres is expected to be robust. Subsidiaries are expected to contribute ` 1.9bn in profit in FY11.

Where are we stacked versus consensus?

Our FY11 and FY12 consolidated earnings estimates are ` 7.8 and ` 9.7 respectively. Our FY11 consolidated earnings estimate is 11.9% higher than consensus expectation of ` 6.9. We reiterate our 'BUY' recommendation on the stock with a target price of ` 97.

What will challenge our target price?

1) Further increase in natural rubber prices, a key raw material; 2) Payment of penalty due to involvement in a price fixing cartel alleged by Competition Commission of South Africa.

Godawari Power: BUY TP- ` 276 ,

Whats the theme?
We expect GPIL to record earnings CAGR of 50% over FY10-12 on volume growth and margin expansion, driven by the recently-commissioned Ari Dongri mine, 0.6mtpa pellet plant, and 20MW biomass power plant. The 0.6mtpa pellet plant of Ardent Steel (75%-owned subsidiary) is expected to provide additional earnings growth, but this is not factored into our estimates.

What will move the stock?

1) Stabilisation of the newly-commissioned 20MW biomass power plant. 2) Improved utilisation of the 0.6mtpa pellet plant and captive usage for DRI production to improve DRI output and profitability. 3) Contribution from Ardent Steel to consolidated earnings is expected from Q3FY11 onwards (not included in our valuations). 4) Boria Tibu mine, which was affected by delay in handover of forest area, is now expected to commence from Q1FY12. 5) Steel profitability expected to improve in seasonally strongest Q4. on the stock and maintain our BUY recommendation with a target price of ` 340 (12x FY12E).

Where are we stacked versus consensus?

Our earnings estimates are below consensus, mainly because we have not included Ardent Steel in our projections.

What will challenge our target price?

1) Obstacles in ramping up of output from the pellet plant (own as well as Ardent Steel's) and the 20MW power plant; 2) Continued delay in acquiring forest land in the Boria Tibu mine; 3) Simultaneous decline in steel prices and power tariff.

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INVESTOR GUIDE

HCL Tech: BUY, TP- ` 488

Whats the theme?
Uptick in discretionary IT spend will continue to provide robust revenue growth for HCL Tech. Recovery of the BPO segment will also provide support to operating margin in FY12. Further strengthening of EUR against USD will have positive near-term impact.

What will move the stock?

1) Robust volume growth of 7.4% QoQ in Q2FY11; 2) Broad based growth across key verticals; 3) Returning to growth trajectory of the BPO segment that appears to have bottomed out; 4) High growth in IMS and custom application segment driven by discretionary spend; 5) Large deal pipeline and highest gross addition proves the confidence in demand environment; 6) Lower forex losses due to absence of negative impact of OCI losses in the ensuing quarters.

Where are we stacked versus consensus?

Our revenue estimates vary from Consensus by ~1%, underpinned by stronger volumes and modest uptick in pricing for FY12. Our EBITDA margin forecast for FY12 is in line with consensus. Our FY12 EPS estimate is also in line with consensus.

What will challenge our target price?

1) Slower recovery in the US economy; 2) Appreciation of INR vs. USD; 3) Increase in tax rates after the sunset clause; 4) Higher attrition and wage increments.

IRB Infra: BUY, TP- ` 301

Whats the theme?
We believe IRB Infra is a proxy play on the Indian road sector. NHAI awarding is expected to pick up in CY11, IRB is the largest BOT operators in India with in-house execution capabilities; it currently has 16 BOT projects in its portfolio, of which ten are operational, five are under construction, and one is in advance stages of financial closure. IRB appears well positioned to add projects worth US$1bn (about 4-6 BOT projects per annum) without any equity dilution.

What will move the stock?

1) Timely execution of projects under construction will act as a catalyst for stock price, the execution in H1FY11 has been satisfactory. 2) Awarding of orders by the NHAI has been slow this fiscal; we believe it would increase the pace of awarding activity in Q4FY11, to achieve its full-year target. We expect IRB to be a major beneficiary of this as it is pre-qualified for projects worth Rs250bn. 3) After the recent correction in stock price, it is available at compelling FY11E and FY12E P/BV of 3.0x and 2.5x respectively and it is trading at FY12E P/E of 14.6x.

Where are we stacked versus consensus?

Our FY11 and FY12 earnings estimates are ` 15.6 and ` 15.2, 9.8% higher and 6.1% lower than consensus respectively. We expect revenue growth of 62.6% and 48% to ` 27.7bn and ` 41bn vs. consensus expectation of 58.3% and 42.3% to ` 26.9bn and ` 38.4bn in FY11 and FY12 respectively. We believe the recent stock price correction provides a good entry point for investors with a long-time horizon; our SOTP-based target price of ` 301 (vs. consensus target of ` 290) indicates potential upside of 34.4%.

What will challenge our target price?

1) Lower traffic growth; 2) Slowdown in execution of current orders; 3) Change in government policies, which may adversely affect current tolling charges.

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INVESTOR GUIDE

Jagran Prakashan (JPL): BUY, TP- ` 165

Whats the theme?
We like JPL for its leadership in UP (the largest print market in terms of readership and print ad value), strong position in growing regions such as Bihar and Jharkhand, better cost efficiency, phased expansion into other forms of media businesses, and a wider portfolio (including Mid-Day). Business growth in H1FY11 (15% ad growth) strengthens our belief that the company is well poised to benefit from steady growth in the print media sector.

What will move the stock?

1) Robust ad CAGR of 18% over FY10-12E and improvement in margins; 2) Broad-based traction in other business verticals; 3) Inorganic growth supported by the Blackstone investment.

Where are we stacked versus consensus?

Our revenue estimates vary from consensus by ~8% for FY12E. Our FY12 net margin forecast of 19% is in line with consensus. Our FY12 EPS estimate, however, is 4% higher than consensus.

What will challenge our target price?

1) Increase in newsprint prices; 2) Slowdown in economic activity; 3) Increased competition in the markets where JPL is present.

M&M: BUY, TP- ` 872

Whats the theme?
M&M, with significant rural presence, is expected to benefit from strong monsoons this year. The automobile segment is expected to grow 20.8% and 13.2% in FY11 and FY12 respectively, on new product launches. The tractor segment too is expected to grow 10.3% in FY11, due to higher crop output.

What will move the stock?

1) M&M acquired Ssangyong, Korea. This acquisition would provide it a 2-3 year leap in terms of product development. The transaction is expected to be completed by year-end. Two SUVs from Ssangyong's portfolio (Rexton and Korando) would be assembled at M&M's Chakan facility. 2) Production for the JV with Navistar began at the Chakan plant. 3) M&M received EPA approval for launch in the US. 3) Demand appears strong for small commercial vehicles (SCVs), the fastest-growing CV segment, which M&M entered into recently with the launch of Maximmo and Gio. 4) The company is expected to roll out expansion plans to ramp up capacity given current growth in the tractor segment.

Where are we stacked versus consensus?

We expect EPS of ` 41.3 and ` 45.5 in FY11 and FY12 respectively. Our FY11 earnings estimate is 8.2% lower than consensus expectation of ` 44.9. We value M&M using SOTP methodology at ` 872, discounting the standalone business at 15x FY12E earnings.

What will challenge our target price?

1) Steep raw material price increases and M&M's inability to pass it on to customers; 2) Increased competition in the UV segment on new launches affecting market share; and 3) Litigation with Global Vehicles Distributor, USA.

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INVESTOR GUIDE

NIIT Tech: BUY, TP- ` 278

Whats the theme?
NIIT Tech has large exposure to high-growth niche verticals such as insurance and travel. New service lines would boost non-linear growth and lead to improvement in realizations. NIIT Tech has no exposure to the PIIGS zone and it has been able to achieve volume growth in Europe despite economic headwinds.

What will move the stock?

1) Recent wins in the Indian market: Five-year BSF contract of Rs2,280mn; 2) Good performance in the Insurance and travel and transport verticals, which contribute ~72% to revenue; 3) Large untapped opportunity in the APAC markets, which are expected to be highest IT spenders in CY10; 4) Strong order book and high growth in top 10 clients; and 5) Stable EBIDTA margins in the IT services business.

Where are we stacked versus consensus?

Our top-line estimates vary from consensus by ~5.3%, underpinned by stronger volumes and modest uptick in pricing for FY12. Our EBITDA margin estimate for FY12 is 20.6% which is in line with consensus. Our FY12 EPS estimate is 4.3% higher than consensus.

What will challenge our target price?

1) Slower recovery in Europe; 2) Sharp currency volatility; 3) Higher attrition and wage increments; and 4) Project delays and cancellation of government contracts.

Shree Cement: BUY, TP- ` 2,580

Whats the theme?
Shree Cement's Q2FY11 results were dismal as cement and power demand in North India was affected due to above-average monsoons. With a flood-like situation prevailing in parts of North India, construction activity slowed. However, cement demand has started to pick up, thus providing some respite to the cement manufacturers. Shree Cement has already commissioned its 1mn MT clinker unit at Ras and it will commission a 1mn MT grinding unit at Jaipur H2FY11. Over the next 12 months, it also intends to commission 300MW of power, which will be available for sale in the merchant market. The company has aggressive plans in the power business with addition of 600MW. Shree Cement is thus well positioned to overcome the current oversupply situation in the cement industry, given its balanced portfolio of cement and power.

What will move the stock?

1) Given a good monsoon season across the country, we expect strong cement demand. 2) For Shree Cement, we estimate a 9% volume CAGR over FY10-12. 3) With improvement in the demand scenario, cement realizations would improve from the recent low levels. 4) Q2FY11 was a difficult quarter for the power business as demand from state electricity boards was lower. It is gradually picking up and the company has managed to enter into a forward contract for 100MW power until July-2011. 5) The power business would contribute ~20% to revenue by FY12E and provide an incremental source of earnings.

Where are we stacked versus consensus?

Our FY11 and FY12 earnings estimates are Rs133 and Rs168 respectively. Our FY11 EPS estimate is 5.9% higher than consensus expectation of Rs126. We remain positive on the stock due to management's excellent track record in project execution and strong earnings visibility.

What will challenge our target price?

1) Delay in infrastructure projects leading to lower cement demand in the near term; 2) Delay in commissioning of power projects.

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INVESTOR GUIDE

TATA STEEL: BUY, TP- ` 759

Whats the theme?
We expect Tata Steel's EBITDA to grow at 48% CAGR over FY10-12, driven by its profitable Indian operations, turnaround at Tata Steel Europe on improved capacity utilization, leaner cost structure, partial resource integration, and better steel profitability. We expect Tata Steel's consolidated net profit to be ` 62.2bn in FY11 and ` 72.7bn in FY12. We find the stock attractively valued at 5.0x FY12E EV/EBITDA.

What will move the stock?

1) Improved profitability of Tata Steel India with better demand and rising steel prices; 2) Easing of high financial leverage with recent debt restructuring at Tata Steel Europe (capital raising of ` 70bn recently approved); 3) Improved fundamentals of Tata Steel Europe notwithstanding a weak Q3FY11E; 5) Progress on raw material integration in Tata Steel Europe; 6) Brownfield expansion of 2.9mn tonnes at Jamshedpur as per schedule.

Where are we stacked versus consensus?

Our FY12 consolidated estimates are almost in line with consensus. We value Tata Steel using SOTP methodology at ` 759.

What will challenge our target price?

1) Lower steel profitability on correction in steel prices and/or significant rise in input costs; 2) Weak recovery in Europe leading to lower capacity utilization and sustained subdued profitability at Tata Steel Europe; 3) Delay in Brownfield expansion; 4) Delay in resource integration.

USHA MARTIN: BUY, TP- ` 120

Whats the theme?
We expect Usha Martin to achieve 33% volume CAGR over FY10-12 on an improved cost structure, with completion of expansion of metallics capacity by 0.4mtpa and that of steel by 0.6mtpa and full integration from mineral resources to value-added products. We estimate 36% EBITDA CAGR and 42% EPS CAGR over FY10-12.

What will move the stock?

1) Volume growth on higher metallics and billet output from the recently-commissioned 0.4mtpa blast furnace (aided by feed from 0.8mtpa sinter plant) and 0.6mtpa steel melting shop respectively; 2) Better performance of international subsidiaries; 3) Increased output from captive iron ore and coal mines after the monsoon season.

Where are we stacked versus consensus?

Our operating profit estimates are slightly lower than consensus as we remain cautious on volumes (our FY12E sales volume is 0.67mnt vs. the company's guidance of 0.8mnt) and margin expansion (FY12E OPM of 21.9% vs. guidance of 25% by Q4FY11).

What will challenge our target price?

1) Delay in stabilization of recently-commissioned projects impacting volumes and margin expansion; 2) Weak recovery in Europe, which contributes >10% to consolidated revenue; 3) Impact on mining operation either due to regulatory changes or naxalite activities; 4) Severe decline in steel profitability.

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Consensus Opinion
The Stock Screener
2010 was a fairly volatile year, and with the market having its share of volatility stock picking became the key to making money. 2011 promises to be even more volatile, and bottom up stock picking could be the key to making money in the markets. In this issue, we cover what the analyst world things about the BSE 500 space.

Bullish Views
Stocks tracked by 15 analysts or more with 90% or more of them having a Buy reco on the same. Script Ahluwalia Contracts Ltd Usha Martin Ltd Cesc Ltd Patel Engineering Ltd Tulip Telecom Ltd Indiabulls Real Estate Ltd Welspun Corp Ltd Bgr Energy Systems Ltd Allahabad Bank Havells India Ltd Jaiprakash Associates Ltd Ipca Laboratories Ltd Asian Paints Ltd Indusind Bank Ltd Sobha Developers Ltd United Phosphorus Ltd Sector Housing Related Capital Goods Power Housing Related Information Technology Housing Related Metal,Metal Products & Mining Capital Goods Finance Capital Goods Housing Related Healthcare Chemical & Petrochemical Finance Housing Related Agriculture % Buy Recos 100.0% 100.0% 96.2% 96.2% 95.5% 95.2% 95.2% 93.5% 93.3% 93.3% 92.3% 91.3% 90.9% 90.5% 90.0% 90.0% Analyst (Total) 16 16 26 26 22 21 21 31 15 15 26 23 22 21 20 20

Bearish Views
Stocks tracked by 15 analysts or more with 40% or more of them having a Sell recommendation on the same. Script Areva T&D India Ltd National Aluminium Co Ltd Reliance Power Ltd Bajaj Hindusthan Ltd Abb Ltd Mahanagar Telephone Nigam Tata Communications Ltd Ambuja Cements Ltd Punj Lloyd Ltd Nestle India Ltd Ultratech Cement Ltd Hindustan Unilever Ltd India Cements Ltd Acc Ltd Reliance Comm. Ltd Siemens India Ltd Voltamp Transformers Ltd Mindtree Ltd Container Corp Of India Ltd Tech Mahindra Ltd Sector Capital Goods Metal,Metal Products & Mining Power Agriculture Capital Goods Telecom Telecom Housing Related Capital Goods Fmcg Housing Related Fmcg Housing Related Housing Related Telecom Capital Goods Capital Goods Information Technology Transport Services Information Technology Analyst (Total) 15 33 18 16 36 16 15 51 31 30 52 40 40 54 43 21 15 25 19 36 % Sell Recos 93.3% 84.8% 83.3% 81.3% 80.6% 75.0% 66.7% 58.8% 58.1% 56.7% 55.8% 55.0% 55.0% 50.0% 48.8% 47.6% 46.7% 44.0% 42.1% 41.7%

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INVESTOR GUIDE

Sector Wise Income Growth

These are the income growth rates the analyst world expects for respective sectors for FY 11 over FY 10 and FY12 over FY 11(Market Cap Weighted) Sector Agriculture Capital Goods Chemical & Petrochemical Consumer Durables Diversified Finance FMCG Healthcare Housing Related Information Technology Media & Publishing Metal,Metal Products & Mining Miscellaneous Oil & Gas Power Realty Telecom Textile Tourism Transport Equipments #N/A Our Filter Favourites These are the stocks that surpass our stringtent filters and are what analysts are more bullish on. The filters varied from minimum coverage, to maximum buy recos and to minimal sell recos and expected price appreciation in excess of markets. The income growth rate of these scripts were above their respective sectors. Script Bgr Energy Systems Ltd Deepak Fertilizers & Petro Gvk Power & Infrastructure Housing Development & Infras Adhunik Metaliks Ltd Indiabulls Real Estate Ltd Indian Hotels Co Ltd Indusind Bank Ltd Jaiprakash Associates Ltd Kalpataru Power Transmission Pantaloon Retail India Ltd Phoenix Mills Ltd Sadbhav Engineering Ltd Sobha Developers Ltd Sterlite Technologies Ltd Tulip Telecom Ltd Usha Martin Ltd Ing Vysya Bank Ltd Sector Capital Goods Agriculture Diversified Housing Related Metal,Metal Products & Mining Housing Related Tourism Finance Housing Related Capital Goods Miscellaneous Housing Related Capital Goods Housing Related Telecom Information Technology Capital Goods Finance Income Growth 11/10 5.7% 22.3% 15.0% 31.8% 7.9% 29.6% 21.0% 3.5% 11.1% -0.2% 18.3% 39.4% 12.1% 19.9% 13.8% 0.0% -21.3% 12.8% 20.3% 25.5% 0.0% Income Growth 12/11 22.3% 13.5% 16.1% 19.2% 18.9% 26.5% 17.8% 11.2% 25.0% 0.7% 10.1% 25.2% 20.6% 19.2% 37.2% 0.0% 27.5% 38.7% 60.1% 21.8% 0.0%

Please note that these are statistical data derived from analyst consensus estimates on the BSE 500 companies. This is not a recommendation. Please speak to our investment advisors before taking positions.

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INVESTOR GUIDE

Multi Asset Structured Products

Nifty Linked Capital Protection structures were first launched in 2007 and soon followed Stock linked and then Gold Linked Debentures. Now for the first time, a multi asset structured product which gives the investor a participation of both Gold and Nifty is available through PINC Money. This would also carry a 100% principal protection. The product is a 36/40 months' investment linked to the basket of Nifty & Gold returns. The product pays 110% participation on the basket return. The investment plan enjoys unique advantages over comparable instruments, some of which are listed as follows: 1. This is the first of its kind in the Indian structured products space with strategic asset allocation as a key concept embedded in the structure. 2. The product pays 110% return on the positive basket performance with no upside cap. The 100% principal protected suits investors who are risk averse in nature. 3. The product enables you to an effective portfolio diversification benefit with ease and with no downside risk as the principal is protected.

Key Features of Basket Linked Debentures

1. 2. 3. 100% principal protection. 110% participation rate on the basket return. Capital appreciation through Nifty while Capital preservation and Portfolio diversification through Gold. 4. 5. 6. Basket Linked Debentures are held in Dematerialized Mode. An effective strategic asset allocation tool. The Basket is made up of 60% Nifty and 40% Gold.

Series B5 - Nifty Gold Basket - Key Features

Tenor Reference Index Issue Opens Issue Closes Deemed Dateof Allotment (DDA) Initial Fixing Level Final Fixing Level Nifty Performance Gold Performance Principal Protection Participation Rate Basket Performance Payoff Minimum Investment Amount Placement Charges 36/40 months S&P CNX Nifty Index | Benchmark Gold ETF - Gold BeEs January 03, 2011 January 24, 2011 February 02, 2011 Reference Index levels on DDA Reference Index levels on DDA + 36M {Initial Level /Final Level}-1 {Initial Level /Final Level}-1 100% 110% 60% of Nifty Performance + 40% of Gold Performance Max{0%, PR* Basket Performance} ` 5,00,000 and in multiples of ` 1,00,00 3% + 10.30% service tax on placement charges

Scenario Analysis and Payoff Matrix Pay off Matrix

NLD Series B5 Scenario 4 Scenario 5 Final Basket Final Basket appreciates by 40% appreciates by 40% Indicative Yield Tenure (Days) Face Value (`) Absolute Return (%) Total Taxable Amount (LTCG) Tax Rate * Tax Incidence Variable Expenses Cash Flow (net of taxes) Absolute Post Tax Return (%) XIRR - CAGR 44.00% 1218 100 44 144 44 10.30% 4.53 0% 139.47 39.47 10.47% 55.00% 1218 100 55 155 55 10.30% 5.67 0% 149.34 49.34 12.76%

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INVESTOR GUIDE

Gold continues its upwards march

Gold continued its march upwards for the month of December, gaining close to 3%, to close at $1420. Intra month it made a high of $1431. This was strongly backed by the fact that the dollar is expected to stay weak, thereby prompting world banks to start buying gold more than the dollar. Also adding to the upmove was, the International Monetary Fund completing the sale of 403.3 tonnes of gold, as part of its two-year efforts to bolster the lender's finances that also saw the Reserve Bank of India purchasing 200 tonnes of the precious metal last year. Other countries that bought gold include Bangladesh, Sri Lanka and Mauritius. Each of these nations had purchased 10 tonnes of the precious metal. With the sale overhang over, markets construed this as a positive for Gold going ahead.

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Where's My Money!
Comparing Portfolio Performances in 2011
The BSE Sensex has been very noisy this year - delivering in the teens and creating a buzz as it usually does. But quite a few portfolios have not delivered as well as they might. With Midcaps coming under pressure and Real Estate stocks hammered and PSUs and metals not delivering well year on year, there were quite a few things that did not go well. And so , quite a few investors are still wondering where their money went if the markets are seemingly doing so well! From our analysis, it looks like the Sensex is still trading at below 19500 levels (actual value 20,500 on 31 December 2010) if one looks at the values of the Sensex constituents and when they last reached their current price levels. On an average, the individual scrips have not kept pace with the BSE Sensex - with 10 of the 30 scrips that make up the BSE Sensex trading below the value of the Sensex at that time, when these first reached their current price levels. Major criminals include stocks like Reliance Infrastructure, BHEL and RCOM which are trading at the same prices when the BSE Sensex was trading around 16000 levels and lower. So if your portfolio had these three scrips only, you would have been left confused why your portfolio's not making money when the rest of the world is seeing a 25% return! ONGC, Reliance Industries, Larsen and Toubro, JP Associates have also lagged behind trading around 18000 level equivalent prices. Only the banking , information technology pack and healthcare , apart from M&M, have kept pace with the Sensex and moved ahead with banks, despite recent corrections ahead of the current Sensex levels - with M&M trading at almost 20,800 levels. This points to the intense sector churn that has happened in the previous 3 months - while the BSE Sensex remained within the 20,000 range, the sector fortunes changed dramatically. And may continue doing so into the next year. The first quarter of next year may possibly change the equations as policies around oil and gas become clearer, which affects 18% of the market capitalisation of the BSE Sensex, and the headwinds for financials (23% weight in BSE Sensex), which is looking at an uncertain USD/INR, housing price declines and margin squeezes, may affect individual portfolios even if the BSE Sensex doesn't do much. In fact, on a consensus view, markets seem to have a 10% upside from current levels so returns would have to be generated from a careful stock selection strategy , taking into account specifics of the company as well as a top down view, with substantial difference in performances even within sectors also another given. Another thing that is making it difficult for performance to be judged against the BSE Sensex is the lopsided nature of the index - with half the scrips in the index not even accounting for 30% weightage, similar to the top 3 scrips- this creates a very volatile benchmark against which it is difficult to judge the actual performance of most portfolios as risk preferences and future world views differ. It would therefore be better if clients define their risk preference besides their returns preference versus the chosen index so that the value of diversification and risk reduction is better represented in the meetings with advisors than it would only if returns were compared. On the other hand, aggressive investors should probably benchmark against a broader index and not the BSE Sensex or the S&P Nifty. Another possible option, given the dramatic difference in performances, is that investors look at allocating a definitive percentage to Index funds and ETFs in their portfolios to ensure that they get exposure to the market truly for a certain % of the portfolio. This is especially true for investors who are sensitive to relative performances of stock portfolios and are investing into mutual funds, which are finding it extremely difficult to beat indices. And yes, a careful regular review of the portfolio with the advisor is more important now than ever before! An hour a quarter would bring clarity on performance and why it lags or stays ahead of indices and what risk is embedded into portfolios. And rid you of unnecessary worries when relatives and TV News anchors blare out why most people are making money - because its likely they may not be! If you have selected a quality portfolio , dont worry about markets every second day - remember that most investors who make money in markets are the buy and hold variety and not the daily traders who wish to stay ahead of markets every day and lose several years of savings in the bargain!

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Expert Speak : Mr. Sandip Sabharwal

Turning to a positive stance in the short run as consensus extremely bearish
I have been cautious on the markets over the last 2-3 months mainly due to extremely overbought conditions, global issues - mainly related to the Eurozone as well as the stubbornly high inflation domestically which has led to extreme tightness in the system and will lead to a short term slowdown in economic growth. Other factors which have come up over the last 4-5 weeks have been related to various so called scams in the markets as well as a standstill in governance due to the impasse on the 2G telecom issues. The markets did correct, however they stopped before the level at which I would have thought that the correction is over and we can look forward clearly towards the year 2011. In the mean time most bulls have also turned bearish in the near term and the consensus has moved towards a correction in the short run and with some technical chartists also predicting that the bull phase itself is converting itself into a bear phase (extremely farfetched in my view). Contributing to the strength in the markets have not been high growth emerging markets but markets of the US and Europe which have held on steadily and continuously moved up even as Emerging markets corrected. This phenomenon has largely been contributed due to the inflation avoidance play in the near term where economies facing inflationary pressures and thus a tight monetary policy and slowdown in the near term have been underperforming those which are not facing such pressures. This has infact also led to greater inflows into US Equity funds vis a vis emerging market funds. The strength of the US Dollar has also not led to an outflow from EM's as would have been expected in the short run. However given the near term strength in the US Economy and the woes in the Eurozone the trend should be for a USD appreciation over the next couple of months. This at some stage should create a market sell off. As is normally the case, as the markets started to correct we saw most market participants first turn cautious and then bearish in the near term. The consensus also veered down to a view of a move towards 5400 for the Nifty in the near term followed by an upmove. The markets did correct to below 5700 levels but has bounced back twice from those levels. Most mid and small caps have also got sold off severely and in some cases by 30-50%. The initial correction in this segment started from stocks where there were some management concerns and then has percolated down to more or less the entire segment where even better known and established mid caps have got sold off by 30% plus. This I believe creates a good opportunity for investors to accumulate for the medium term. Taking all factors into account it seems more likely that we will see the markets have a positive bias till the year end and into the new year. We could get another sell off sometime later and as such we will need to watch out for that as the Eurozone issues and Chinese tightening to control inflation still have the ability to create deep short term corrections. "More wealth has been destroyed in waiting for corrections than in corrections itself"- Peter Lynch (Something that I would normally believe in being a bull at heart)

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INVESTOR GUIDE

For Good SIP Returns - Choose a Volatile Fund

IInvestors interested in an SIP normally ask a question - which is the best fund to invest in? And usually, the advisor turns to well rated funds that display low volatility and more consistency- preferably large cap. This ironically is completely incorrect! SIPs, as the table shows, work best when the fund displays exactly the opposite characteristics of a lump sum investment - Investors should ideally be looking for high volatility and low consistency. Refer to the returns in the table for an SIP versus the market, versus a fund that displays 20% more volatility than market, versus another fund that displays 25% more volatility and versus a fund that is an investor's dreamdelivers better in good markets and delivers less negatives in bad markets! Guess which one outperforms! Price Movement Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Market 100 97 92 93 96 98 96 97 100 90 94 100 96 97 100 95 97 92 91 98 92 92 98 95 100 97 96 90 97 93 96 99 97 91 93 100 Volatile Fund 1 100 96.4 90.4 91.6 95.2 97.6 95.2 96.4 100 88 92.8 100 95.2 96.4 100 94 96.4 90.4 89.2 97.6 90.4 90.4 97.6 94 100 96.4 95.2 88 96.4 91.6 95.2 98.8 96.4 89.2 91.6 100 Volatile Fund2 100 95.68 88.48 89.92 94.24 97.12 94.24 95.68 100 85.6 91.36 100 94.24 95.68 100 92.8 95.68 88.48 87.04 97.12 88.48 88.48 97.12 92.8 100 95.68 94.24 85.6 95.68 89.92 94.24 98.56 95.68 87.04 89.92 100 Investor's Dream Fund 100 97.6 93.6 94.8 98.4 100.8 99.2 100.4 104 96 100.8 108 104.8 106 109.6 105.6 108 104 103.2 111.6 106.8 106.8 114 111.6 117.6 115.2 114.4 109.6 118 114.8 118.4 122 120.4 115.6 118 100 Market 1.00 1.03 1.09 1.08 1.04 1.02 1.04 1.03 1.00 1.11 1.06 1.00 1.04 1.03 1.00 1.05 1.03 1.09 1.10 1.02 1.09 1.09 1.02 1.05 1.00 1.03 1.04 1.11 1.03 1.08 1.04 1.01 1.03 1.10 1.08 1.00 Units Accumulated Volatile Fund 1 1.00 1.04 1.11 1.09 1.05 1.02 1.05 1.04 1.00 1.14 1.08 1.00 1.05 1.04 1.00 1.06 1.04 1.11 1.12 1.02 1.11 1.11 1.02 1.06 1.00 1.04 1.05 1.14 1.04 1.09 1.05 1.01 1.04 1.12 1.09 1.00 Volatile Fund2 1.00 1.05 1.13 1.11 1.06 1.03 1.06 1.05 1.00 1.17 1.09 1.00 1.06 1.05 1.00 1.08 1.05 1.13 1.15 1.03 1.13 1.13 1.03 1.08 1.00 1.05 1.06 1.17 1.05 1.11 1.06 1.01 1.05 1.15 1.11 1.00 Investor's Dream Fund 1.00 1.02 1.07 1.05 1.02 0.99 1.01 1.00 0.96 1.04 0.99 0.93 0.95 0.94 0.91 0.95 0.93 0.96 0.97 0.90 0.94 0.94 0.88 0.90 0.85 0.87 0.87 0.91 0.85 0.87 0.84 0.82 0.83 0.87 0.85 1.00

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INVESTOR GUIDE

In our opinion, if an investor follows the following conditions before initiating an SIP , she should be laughing her way to the bank in a few year's time: 1) Should have a fundamental belief that Indian markets will do well in the long term and can be highly volatile in the medium term; 2) 3) Should be willing to continue the SIP no matter how much the markets drop Should be investing into good quality midcap funds, managed by well respected fund managers

Counterintuitive? But True! Total Units Market Value Cost of Investment Returns 37.66 3765.89 3600.00 4.61% 38.02 3801.94 3600.00 5.61% 38.47 3846.63 3600.00 6.85% 33.67 3366.76 3600.00 -6.48%

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INVESTOR GUIDE

Tactical View for January 2011

Asset Class Indian Equities Long Term Bonds /Bond Funds Floating Rate Funds/ Liquid Plus Gold Silver Tactical View Positive Negative Positive Positive Positive

We believe the global economy is not yet completely out of the woods as the data would have to strengthen considerably, especially given headwinds from Europe and the fear of an inflationary bubble keeping the lid on runaway markets. We expect markets to watch post holiday data carefully to gauge whether recoveries were one off and an immediate reaction to the easing programmes or are more sustained in nature. Spikes in interest rates as a function of capital flows / return to risk aversion are therefore not ruled out and we remain negative on long term bonds.

To access our short term tips via SMS or research reports via mail or to unsubscribe from any of our mailing lists, please mail us your request at customer.care@pinc.co.in with your Client ID. For our latest research reports, please visit www.pincmoney.com This publication is for private publication only. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors The information contained herein is obtained and collated from sources believed reliable and PINC has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document