WEALTH MANAGEMENT

Introduction

1. Introduction to Wealth Management

Financial planning is for everyone today. Even middle-income families, for whom financial planning
once meant little more than front-load mutual funds and annuities, now have access to range of
options formerly available only to the wealthy, like comprehensive plans and fee-only advisers.

If you sat 100 wealth managers in one room and asked them to define wealth management, you may get
100 different answers. This is partly because of the personal and individualistic way in which wealth
management should be offered to each client.

Wealth management is about taking care of all your financial needs, as well as those of your family and
in some cases businesses through a long-term, consultative relationship. Depending on the demands of
the client, this can comprise different levels of service.

Clearly, the full wealth management service covers many areas of expertise, from tax through pensions
to investment management. It is unlikely that any one wealth manager will have expertise in all these
areas.

The investment strategy will depend on his new objectives and risk tolerance, as well as existing
wealth. He will probably want to plan for how the money is passed on to his children and grandchildren
before and on his death. He may also want to give some money to charity but have some control over
how this money is distributed and used through the establishment of a trust.

One of the key phrases of wealth management should be “comprehensive financial planning”. A
wealth manager should seek to find out what is important to you and your family. What financial
goals do you have and how do you want to accomplish them?

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2. The "New Wealth"

When speaking of "wealth" in this industry, there tends to be a focus on "investable assets." In addition to
historic sources of inherited and/or accumulated wealth, changes in the "retirement paradigm" have
created a new "source of wealth" and new issues in managing it. With the trend away from defined
benefit to defined contribution plans, and with many plans now existing for 20 years or more, there are
increasing numbers of people with very significant wealth accumulated in their retirement plans. This
growing number of potential "wealth management" clients will need to manage their funds differently
since they now have, in essence, a "personal pension their own control.

3. Definition of Wealthy People

Organizations are increasingly recognizing that one size does not fit all, and it is necessary to match
products/services and distribution to specific customer segments. The use of investable assets ("liquid
wealth") is one means of segmentation that can indicate both likely customer needs and the "value" of
the customer. This then impacts how we can (afford to) serve them. The following segmentation
scheme reflects what we often see in the industry.

o Mass Market: up to INR 1 Million in investable assets.

o Mass Affluent: Over INR 1 Million to say INR 10 Million.
o High Net Worth: Over INR 10 Million to say INR 50 Million
o Ultra High Net Worth: over INR 50 Million in investable assets.

Generally speaking, when institutions talk about the "Wealth Management Market," they are talking
about the two highest categories above.

4. Definition of Wealth Management

With the background outlined above, "Wealth Management" can be defined as ‘providing appropriate
financial products and services to meet the needs of people with significant investable assets. Broadly
speaking this can include:

• Continued growth of wealth — by appreciation of existing assets as well as continued accumulation

of new assets.
• Protection of assets from inappropriate investment risk and unnecessary taxes.

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• Appropriate use of assets to support a desired lifestyle. This may include

development of a structured income stream, periodically liquidating assets as needed, etc.
• Transfer of assets. This includes determining when, how and to whom assets are to be transferred.’

Institutions that can most effectively fulfill these needs on a coordinated basis will be the winners in the
wealth management market space.

5. Current Wealth Management Market in India

India’s dollar millionaires’ club is growing faster than most other economies. The number of HNIs
grew by 19.3% in 05 with individuals with financial assets of INR 4.5 crore and above. India now
stands at 95,000+ as compared to 70,000 in ’04 and 83,500 in 2005, according to the World Wealth
Report from Capgemini and Merrill Lynch.

India and China are today considered to be the economic powerhouses of the world. India has
benefited in the post-liberalization era which has seen the economy record robust year-on-year
growth. Today, affluence is no longer considered the bad word that it used to connote about three
decades ago. Rising affluence levels has seen the concept of wealth management gain ground.

This is a new segment but is gaining significant ground in the country. Various institutions have
different types of benchmarks. One parameter could be the quantum of financial assets owned. This
segment excludes home and jewellery. The number of persons in India who have wealth of over INR
2.5 crores which was placed at 1.60 lakhs in the financial year 2004 should rise to four lakhs in the
financial year 2010.
Industry estimates put the wealth of the top 70,000 rich individuals in the country at $260 billion.

Today, there are numerous agencies looking at wealth management. Banks for one are at an
advantage given the nationwide presence. Almost all banks notably the private sector and foreign
banks are looking at this segment.
This business of wealth management runs like other businesses on the element of trust. This means
that you are willing to allow a person whom you trust to handle your wealth. The growth of
independent financial advisors (IFAs) would help this industry also. Already some regulations are

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coming in place like the AMFI certification for distributing mutual funds which
should also help the growth of this industry.

6. Growth Drivers of Wealth Management in India

One reason is the economic liberalization which India witnessed in the early 90s. The rise of the
knowledge-based economy has proved to be a boon what with an increase in the number of
professionals. They enormously benefited thanks to employee stock options (ESOPs).

The returns on assets are a mixed bag. While fixed income products have seen a decline, the stock
market and real estate has done very well in the last 3 years. Therefore, there is a rising demand for
Equity and equity related instruments, e.g., Equity Mutual Funds and Unit Linked Products.
Commodities as a class of asset is becoming popular. The key point is that investors are aware of the
ground realities. They would look at preservation of capital in a volatile scenario rather than seeking
maximization of returns. This is an opinion many investors cutting across age or background are
demanding. In India, various Banks are providing the services of so called Wealth Management by
forming a different department called “Private Banking”

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Products to choose from…

1. Traditional Products

a) Banks:

Considered as the safest of all options, banks have been the roots of the financial systems in India. For
an ordinary person though, they have acted as the safest investment avenue wherein a person deposits
money and earns interest on it. The two main modes of investment in banks, savings accounts and
Fixed deposits have been effectively used by one and all. However, today the interest rate structure in
the country is headed southwards, keeping in line with global trends. With the banks offering little
above 9 percent in their fixed deposits for one year, the yields have come down substantially in recent
times. Add to this, the inflationary pressures in economy and you have a position where the savings are
not earning.

c) Company Fixed Deposits:

Another oft-used route to invest has been the fixed deposit schemes floated by companies. Companies
have used fixed deposit schemes as a means of mobilizing funds for their operations and have paid
interest on them. The safer a company is rated, the lesser the return offered has been the thumb rule.
However, there are several potential roadblocks in these. First of all, the danger of financial position of
the company not being understood by the investor lurks. The investors rely on intermediaries who more
often than not, don’t reveal the entire truth. Secondly, liquidity is a major problem with the amount
being received months after the due dates. Premature redemption is generally not entertained without
cuts in the returns offered and though they present a reasonable option to counter interest rate risk
(especially when the economy is headed for a low interest regime), the safety of principal amount has
been found lacking. For those who are not adept at understanding the stock market, the task of

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generating superior returns at similar levels of risk is arduous to say the least. This is
where Mutual Funds come into picture.

d) Gold

Gold's natural advantage of being an asset independent of inflation or currency gives it the ubiquitous
status of being nobody's liability. In other words, the very fact that gold price is not linked to any
country's currency or inflation automatically makes it the only asset which remains unaffected by the
changing economic environment in any particular country.

Gold proved to be their safety net at a time when stocks, currencies and property went bust. As the
region recovers, the gold buying is back with a vengeance. A more recent example was the increased
demand for gold coins in the US to hedge against potential losses due to the Y2K fall-out. Gold has
again emerged as the asset of the last resort and proved its effectiveness as the only dependable hedge
against inflation and currency risks.

History has shown that gold has survived through the ages. Even in these modern times with various
financial derivatives available and in the age of e-commerce, gold's importance as an insurance asset
cannot be ignored. In the short term, the downside risk is limited and in the longer term, gold's position
as a security asset is assured.

Gold Bond Scheme:

The objective of the gold deposit scheme was to utilize the gold lying with the Indian consumers for
recycling to reduce import and enable the owners of the gold an opportunity to earn interest on their
gold holding over and above capital appreciation. According to recent reports, since its launch in
October 1999, the gold bond scheme has garnered approximately 4.5 tons of gold worth around INR.
233 crores.

While this is way below the target of collecting gold worth INR. 1,200 crores, one must realize that this
is a process changing mindsets which is always slow. The Scheme should be given a few years before
its effectiveness can be accurately measured. Moreover the Reserve Bank now needs to introduce other
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gold related consumer products such as gold accumulation plan, gold accounts etc to
begin the gold consumer–banking industry interface which has been lacking as of now. This will create
a mutual relationship of the gold consumer with his banker

WGC has for long been advocating introduction of newer gold products
which would help monetize gold.

The World Gold Council is very keen to play an integral role in the introduction of gold bullion trading,
gold banking and derivatives and gold hedging. However, to initiate these programs, it is extremely
important that the necessary infrastructure is in place. At present, such infrastructure is still being set-up
and the necessary legislations need to be in place.

Some of the products that can be introduced include gold accumulation plans, gold accounts gold bonds
etc.

Between India and China, 60% of the world gold demand is generated. No major change is
anticipated and there could be more than 5% Year on Year demand increase in the coming 2-3
years.

There are 3 aspects to the gold trade in India, namely:

i. Supply
ii. Demand, Design, Technology, Hallmarking, Retailing
iii. Gold market

i. Supply
With the advent of liberalization in 1991 and the abolishment of the Gold Control Act, 1962,
restrictions on import of gold have been eased slowly over the years. Premiums on gold over the
international price have come down from 60% during the gold control regime to around 10% currently.
Today, gold can be officially imported through 3 channels, namely
1. By Non Resident Indians (NRI) returning from abroad upto 10 kg every 6 months
2. Under the Special Import License entitlement scheme (SIL), and
3. By authorized banks and other trading agencies who have been given the license to import gold

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under the open general license

Import of gold from all these channels attracts an import duty of INR. 400/- for every 10 gms imported
(approximately 10% of the value). Currently, almost 85% of the gold imported into India is through
these official channels.

The WGC has played a very active role in the introduction of the OGL route through representations
and seminars organized to discuss the modalities of permitting import of gold under this route. The
Council is also actively pursuing the cause for the reduction of import duty on gold to bring the Indian
gold price closer to the world gold price and reduce the dependence on the unofficial channels for
import.

ii – a) Design
The Council is actively involved in both the sides of the design aspect of gold; training and promotion
of designers. The Council also conceptualized and has been conducting 'Swarnanjali' – the biggest gold
jewelry designing competition since 1996. The objective in the promotion of the design aspect of gold
jewelry is to ensure availability of newer and innovative designs, which cater to both the traditional and
the contemporary tastes.

ii – b) Technology
The Council regularly organizes training programs conducted by renowned international consultants for
manufacturers and karigars to acquaint them with improved soldering techniques, new methods to
control gold losses in production, finishing etc. The interactive symposium provides attendees a
platform to discuss and find solutions for specific shop floor problems. This is another area where the
Council hopes to make a difference by creating better working conditions and making available better
technology to the fabricators.

ii - c) Hallmarking
The Council continuously strives to highlight the benefits of hallmarking for the consumer and the
retailer and hopes to ensure that most of the retailers adopt hallmarking with the next 3 years. As of
today, more than 90 retailers have applied for the hallmarking license out of which at least 50 have

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already started selling hallmarked jewelry.

ii – d) Retailing
Over the years, the retail gold market has changed dramatically. The new economy has enlarged the
horizon the consumer who is now demanding better designs and shopping environment. Besides, the
growing affluence and influence of the west have caused a sea change in the consumer's preferences.

Today, gold jewelry is marketed through aggressive advertising and PR initiatives, something that was
unheard of 3 years back. We also have seen the emergence of branded players who have created a
separate niche for themselves.

iii) Gold Market

Introduction of bullion trading, setting up of a gold exchange, gold banking and derivatives and gold
hedging are some of the next steps on the Council's agenda. However, necessary infrastructure has to be
set-up and policies have to be framed, for these to become a reality. Gold as an Investment: on
parameters of risk, return and liquidity-when compared to other investment avenues like fixed
deposits, equity, real estate

2. New Era Products

a) Equity

i) Basics of Equity Market Equity Investments - Investments in which the investor is considered an
"owner" in the asset. Usually considered higher risk than cash or debt instruments, the rate of return on
an equity investment is never guaranteed.

There are two ways in which you can invest in equities-

1. Through the secondary market (by buying shares that are listed on the stock exchanges)
2. Through the primary market (by applying for shares that are offered to the public)
Over the long term, equity shares have offered the maximum return to investors. As an investment
option, investing in equity shares is also perceived to carry a high level of risk.

Your Present Value is about INR. 200 Crores + And,

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The Company is WiproOther Such examples are…

Cipla: Investment of INR. 10,000 in 1979 will fetch INR. 95 cr.+

Infosys: Investment of INR. 10,000 in 1992 will fetch INR. 1.5 cr.+

Ranbaxy: Investment of INR. 1000 in 1980 will fetch INR. 1.9 cr.+

iv) Some important points

 Start off on the right track

You need to accept the process of investing in equities as one long journey that will constantly
enlighten and enrich. Surely you will make mistakes on the way, but credit these to experience. In fact,
the earlier you make the mistakes, the more valuable and less expensive will be the experience.

 Diversify your investments

Remember the proverb about `putting all your eggs in one basket'. Well, it applies just as much to
investing in stocks. As a thumb rule, you should not have more than 10% of your net worth in any one
stock, even if it is the absolute winner of an idea. At the same time, do not hold too many different
stocks in your portfolio. It is difficult to monitor them.

 Be Disciplined

You don't have to be a genius to be a successful investor but discipline is a must. To be disciplined you
need to follow some rather simple rules and follow them well -
1. Do all your research before you buy a stock and write down the reasons for buying it.
2. Analyze your company's performance through quarterly results, annual reports and news articles.
The idea of analyzing is to make sure that the reasons for which you bought the company's stock remain
valid.
3. If important variables i.e. the reasons for buying and holding the stock have changed, then revisit
your investment decision.
4. Be unafraid to act (i.e. BUY or SELL) if your "revisit" tells you to do so.

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 Set the administrative issues in order

1. Get yourself a good broker. Get access to a broker on atleast one of the two major stock
exchanges, i.e. the Bombay Stock Exchange and the National Stock Exchange.
2. Open a depository account. Dematerialize all your stock holdings that can be dematerialized.
3. Understand the settlement systems. When do your payments need to be made or received?
Similarly, understand when shares transacted are receivable or need to be delivered to the broker.
4. Always update your portfolio worksheet, detailing all your equity investments held as on date.

 Business model
Undoubtedly, the very first thing that any investor must look at is the business/sector that the company
is operating in. The sustainability of the business model, scalability and robustness are factors that
every investor must consider before studying the stock any further. To give a simple example, the top-
tier software companies' business models are focused on the 'Global Delivery Model', a totally new
paradigm that has changed the face of the global software industry. The key to the strength of this
model is seamless co-ordination between centres across the globe and excellence in execution.
 Management
The management is another extremely important factor to consider before investing in any company. At
the end of the day, it is the management that will be the driving force behind the future direction and
success (or failure) of the company.
 Competition in the industry
Undoubtedly, the company's competition is a major factor that you as an investor should look at before
deciding to buy (or not to buy) that company's stock. It should be understood that most industries are
highly competitive in today's free market environment, unless that industry is highly regulated (such as
energy) or is characterized by artificial entry barriers. Therefore, not just the competition, but also the
company's place in the industry (market leadership) should be assessed before taking the plunge.
 Financial analysis
This, of course, is one of the major factors that most investors look at. It includes doing a detailed study
about the company's financial position and performance over a reasonably long period of time.
Studying its sales growth, trends in EBITDA margins, net profit growth, return ratios and other such

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number crunching is pertinent in order to understand as to whether potential is being

transformed into performance. Such a study is commonly known as 'Fundamental analysis'.
 Dividend yield
This is another factor that is often considered by investors. Dividend yield is basically the trailing 12-
months dividend per share divided by the current market price. The dividends are a form of income
from shares and regular dividend-paying companies do provide some comfort that their profits and cash
flows are stable enough to enable them to keep on paying dividends each year. High dividend-yielding
stocks could provide some cushion against any potential downside.
 Value
And finally, the last step in deciding whether or not to buy a stock - the valuation phase. While the
business model, management, fundamentals and market positioning of the company may be the best, if
the stock is trading at valuations that are not warranted, then it is not worth buying the stock.

“In the short run the market (equity market) is a voting machine. In the long run it is a weighing
machine”

- Benjamin Graham

For those who are not adept at understanding the stock market, the task of generating superior returns at
similar levels of risk is arduous to say the least. This is where Mutual Funds come into picture but
before moving on to Mutual Funds; let’s understand “Portfolio Management Services”.

b) Portfolio Management Services (PMS)

i) What is PMS?

The process of investment of funds in Equity, Debt, Derivatives and related instruments through a
professional manager; who customizes the portfolio as per the needs of the investor, is normally
referred to as Portfolio Management. In Mutual Funds a person makes an investment in a fund and
becomes a proportionate beneficiary in the fund. He has no control over the process or direction of
the investment. Also, the disclosure and reporting is much poorer compared to PMS. In Portfolio
Management, the investment remains in the name of the investor and he is the actual owner of the

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securities all the time. He avails of the personalized services of an expert who
invests based on the authority and specifications given by the investor.

c) Mutual funds:

i) What is Mutual Fund?

Mutual Funds are essentially investment vehicles where people with similar investment objective come
together to pool their money and then invest accordingly. Each unit of any scheme represents the
proportion of pool owned by the unit holder (investor). Appreciation or reduction in value of
investments is reflected in net asset value (NAV) of the concerned scheme, which is declared by the
fund from time to time. Mutual fund schemes are managed by respective Asset Management
Companies (AMC). Different business groups/ financial institutions/ banks have sponsored these
AMCs, either alone or in collaboration with reputed international firms. Several international funds like
Alliance and Templeton are also operating independently in India. Many more international Mutual
Fund giants are expected to come into Indian markets in the near future e.g., Lotus (who have already
set up shop in India though yet to launch schemes)

 A vehicle for investing in stocks and bonds

A mutual fund is not an alternative investment option to stocks and bonds, rather it pools the money of
several investors and invests this in stocks, bonds, money market instruments and other types of
securities.Buying a mutual fund is like buying a small slice of a big pizza. The owner of a mutual fund
unit gets a proportional share of the fund’s gains, losses, income and expenses.

Some popular objectives of a mutual fund are:

Fund Objective What the fund will invest in

Equity (Growth) Only in stocks
Debt (Income) Only in fixed-income securities
Money Market (including In short-term money market instruments (including government

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Gilt) securities)
Balanced Partly in stocks and partly in fixed-income securities,
in order to maintain a 'balance' in returns and risk

ii) Different types of Mutual Funds:

 Equity Funds: This is a scheme that invests only in equity. This type of fund’s main objective is to
provide long-term growth through Equity/stock investments.

Every Equity fund scheme has a set Fund Philosophy. The choices available today are; Diversified
funds, Sectoral funds, actively managed funds, thematic fund, index funds etc. Sectoral fund is the most
risky.

 Debt Funds: These funds hold major investments in bonds of different categories and the downward
change in interest rates has seen the returns from these funds soar high in recent timesThis section is
essentially meant for the people who wish to know more about the basics about them. I have just tried
to explain what are bond funds and the factors that affect them.

iii) Benefits of Investing through Mutual Funds

The benefits on offer are many with good post-tax returns and reasonable safety being the hallmark that
we normally associate with them. Some of the other major benefits of investing in Mutual Funds are:

 Professional Money Management: Fund managers are responsible for implementing a consistent
investment strategy that reflects the goals of the fund. Fund managers monitor market and economic
trends and analyze securities in order to make informed investment decisions.
 Diversification: Diversification is one of the best ways to reduce risk (to understand why, read The
need to Diversify). Mutual funds offer investors an opportunity to diversify across assets depending on
their investment needs.
 Liquidity: Investors can sell their mutual fund units on any business day and receive the current
market value on their investments within a short time period (normally three- to five-days).
 Affordability: The minimum initial investment for a mutual fund is fairly low for most funds (as low
as INR 5000 as Lump sum and INR 500 through Systematic Investment Plan for most of the schemes)

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 Convenience: Most private sector funds provide you the convenience of periodic
purchase plans, automatic withdrawal plans and the automatic reinvestment of interest and dividends.
Mutual funds also provide you with detailed reports and statements that make record-keeping simple.
You can easily monitor the performance of your mutual funds simply by reviewing the business pages
of most newspapers or by using our Mutual Funds section in Investor’s Mall.
 Flexibility and variety: You can pick from conservative, blue-chip stock funds, Sectoral funds,
funds that aim to provide income with modest growth or those that take big risks in the search for
returns. You can even buy balanced funds, or those that combine stocks and bonds in the same fund.

d) Real Estate

 Indian real estate market on a high growth curve and growing at the rate of 30% per annum.
 Services sector continues to be the major real estate driver
 Approximately 30 mn.sq.ft. of office space supply to enter the market per annum for the next three
years
 Proactive policy changes for the sector have led to increased foreign interest
 Close to US$ 5 billion waiting to enter the Indian real estate market through the real estate venture
capital investment route
 Recently permitted Real Estate Mutual Funds (REMFs) foreseen to increase liquidity for the sector

The Indian real estate landscape has undergone a paradigm shift over the past few years. With
economic liberalization, increased globalization and the consequent increase in business s
opportunities, India's real estate sector is on a high growth curve. A booming economy, depicted by
the soaring levels achieved at the stock market, increasing demand across sectors and favorable
demographics have given rise to corporate optimism and has provided the necessary impetus for the
office space demand to reach greater heights.

A number of knowledge and technology intensive sectors have emerged as the sunrise segments,
causing the demand for commercial space to go into an overdrive. India's strong economic
performance and its established position as an off-shoring destination has translated into a more
robust real estate environment.

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The Indian real estate market is going through a boom phase and has
metamorphosed into one of the world's most attractive investment avenues. It will continue to derive
its growth from the thriving offshoring industry. Facilitative government measures and reforms like
allowing Real Estate Venture Capital

Funds and the recent announcement by Securities and Exchange Board of India (SEBI) to permit
Real Estate Mutual Funds (REMF) will provide increased liquidity and help in increased
transparency and legitimized funding for the industry. This, coupled with a multitude of Initial Public
Offers (IPOs) being planned by major real estate developers of the country, will result in greater
capital supply to the real estate market and ensure larger scale of development.

 Outlook of Real Estate Market in Mumbai

In Mumbai, the trend for surbanisation is likely to continue with locations like Andheri and Malad
capturing significant demand for large format spaces from the tech sector. Factors like scalability,
human resource availability, proximity to residential locations, robust telecom connectivity and new
developments in these locations that offer quality physical infrastructure at competitive prices are
increasingly making these locations attractive for the IT & ITES companies. In future, Navi Mumbai
and Thane will also draw considerable demand from the technology sector.

Various industrial plots along the L.B.S. Marg stretch in central suburbs as well those in Navi
Mumbai have the potential of being converted into commercial space. Together with this, it is
expected that the positive final judgment in favor of mill owners would contribute to medium term
stability in the supply situation.

Heightened interest from corporates, increased leasing on account of consolidations, relocations and
scaling up of operations due to growth and expansion of business environment across all sectors
including IT/ITES, banking, finance and insurance, pharmaceuticals and services sector will continue
to fuel demand for office space in Mumbai. Of late, there has been an increasing preference by
corporates to occupy signature or standalone buildings.

A major infrastructure initiative to reduce congestion and improve connectivity, the Mumbai Metro
Rail Project, is expected to have a positive impact on the real estate values along its route.

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e) Art

i) Background of Art in India

‘Many invest in art simply to possess the best and few see it as an investment to be traded.’

The Indian art market has undergone a palette change since the 1960s and 1970s, when artists often led
a hand-to-mouth existence, teaching art or joining advertising to survive. Today, with professional
galleries handling art as commerce, with the art auctions of the 1980s revamping price structures, with
overseas collectors like Chester Horowitz, Charles Saatchi and Masanori Fukuoka acquiring Indian art,
the picture is shaded differently.

Bangalore may not be quite the investor's hub as Mumbai is, but it does reflect the ups-and-downs of
the contemporary art market just as accurately. Naozar Daruwala of Crimson the Art Resource,
explains, "True art investors, as I understand the term, can be counted on your two hands. The resale
value of paintings varies dramatically from artist to artist, from painting to painting, as there is still no
real secondary market in India. Returns would depend on when investors bought the work. Was the
artist already well known? Is the painting considered one of his good ones? Returns within a three-year
period are not great. However, between three to five years, they could double. New websites like
SaffronArt.com offer a good opportunity for resale."

"We don't have clients who buy a work they don't like just because it is a good investment," expands
Sunitha Kumar of Sakshi gallery. "Our younger patrons in their 30s and 40s like buying younger artists.
They are willing to take risks and are not confining themselves to a canvas or a sculpture"

She has never viewed art as an investment and has never tried selling it. "But as far as I know it isn't
easy to sell from your collection. So, it's not exactly a liquid investment!"

How has the current lack of buoyancy in the financial markets affected art investmentsAnd artists have
not reduced rates, though they may do so privately," confesses Naozar. "The Indian art investment
market has been steadily rising. It still has potential that one can explore. If one has a good gallery or

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consultant, instances of the work depreciating are quiet rare," stresses Sunitha. "But
at the end of the day, you should buy what moves you."

ii) Art as an Investment

Art investment in India appears to have dimensions beyond mere lucre. The human face throbs at the
heart of art transactions here, no matter what business sense dictates.

It's the art world's best-kept secret; ask any Indian art dealer of repute and he, or most often, she, will
tell you that they've known it all along: Indian artists are the best in the world. It wasn't often that a
painting by an Indian artist was auctioned for 1.5 crore rupees or is even seen to be 'worth' that kind of
money. But over the years, contemporary Indian art, like Tyeb Mehta's 'Celebration' triptych, has
commanded such a price. Indian art is increasingly becoming more that just a pretty picture to hang on
your walls. Some canvases command serious money and this makes them as valuable as stock market
blue chips.
"The investment value of a piece of art first begins with the hype and popularity levels of an artist,"
explains Ashvin Rajagopalan, a young Chennai collector and gallery owner. "Initially, a first-time art
show's success is based on how popular the art is, who collects it, and how much is paid for the art.
After that, it depends on how the artist sustains himself. But most often, artists get better and the prices
of the paintings usually go up."

Since 2000 Indian art has appreciated a staggering 10 per cent faster annually than the stock market.
Your art investment would have doubled its value in two-thirds the time taken by your equity shares.
And we thought the stock market was on fire. Their bids were driven by hopelessly over-leveraged
assets, and ended in tears when many winning bidders couldn’t even take delivery of their prizesIndian
contemporary art has arrived as a credible capital asset. Financial institutions are ready to invest in art
as part of a diversified portfolio. Tax authorities are conducting ‘surveys’ to gauge the scale and nature
of this wealth.

"Art is a fine asset to hold as part of one’s portfolio. But it is essential to know the subject well, to
do one’s homework, and buy an artist who has a clear resale brand value."

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Today most of my savings are in contemporary art...but to buy what one likes isn’t
enough. The aesthetic eye needs to be trained and that takes time."

In the past India has not given any respect to the financial, because she was unable to systematically
link the historical to the financial. History is the key to pricing art. Once public perception clarifies on
this issue the momentum is irreversible."

India head of investment banking for Citigroup, Pramit Jhaveri, reaffirms the bright future and is
optimistic on the investment prospects for art: "Handled right, art is an asset class with great potential.
It has the interest of the high net worth community across the world."

Today, it isn’t only the very wealthy who’ve noticed the remarkable appreciation in Indian art. Good art
doesn’t necessarily cost lakhs or crores. It can be had for as little as several thousands of rupees. A
dedicated art fund (see box) could lower the entry price even further.

But whatever the price, are you getting value? Today the public is aware that art compares favorably
with other financial investments. Once the environment to love and invest in art becomes more
transparent and information moves with greater ease the growth in the art market will receive its next
major impetus. Simplification of the tax and duties structure will further add momentum to the growth.

The amounts of money today are very serious, comparable to middle ground European art at many
levels. Indian buyer. As a result they lacked energy and any serious international credibility. "Unless
your domestic economy drives the market no international boom is possible," says Tuli.

He helped develop the local market with a seminal publication on Indian contemporary painting–The
Flamed-Mosaic–along with organizing the first major festival of Indian contemporary painting along
with the HEART, NGMA, Bharat Bhavan and the key galleries of Mumbai, and then culminating it
with India’s first professional auction: The Intuitive-Logic II. Ravi Varma’s Begum Bath fetched INR
32 lakh in November 1997, becoming the most expensive Indian modern painting.

Liquidity and the short, sharp craze of fashion typically don’t last as long. And any market that has
outperformed one of the most attractive equities markets in the world cannot retain its performance
edge forever. Yet a healthy art market will eventually help keep a smile on the face of anyone who
ponders the long-term trend for the value of Indianart.
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If art is viewed as a monetary investment, where does that leave the discerning
collector who has an emotional stake in a work of art?

HOW MUCH?
Today, M.F. Hussain’s works are known more for the crores and controversies they generate than their
artistic content"Many people are now contemplating the idea of investing in art, and in Indian art in
particular," declares The Handbook of Indian Art Investment - 2006-07 compiled by Raw Umber India.
"However, a large number of people who plan to invest know very little about art, the art market, or
how to invest."

The purpose of the handbook as well as the event `Art as an Investment: Keeping up with the Indian Art
Market', organized recently as part of the Taj Business Celebration Series, was ostensibly to provide a
perspective on the Indian art market and guidelines that would prove useful in identifying meaningful
investments in art.

iii) 5 Reasons to Invest in Contemporary Indian Art

1. All works of art are unique pieces. No two pieces of the same kind exist and therefore, good works
become all the more valuable.
2. The return on investment in art could go up to 20 per cent per annum.
3. Art never gets cheaper.
4. If one were to buy good work by an older artist, the art appreciates by leaps and bounds and there is
good re-sale value for it.
5. Art is as much of an investment as buying shares or buying gold. To some degree, it is a gamble as
much as investing in shares, gold, property or bonds is. But then, is anything 100 per cent foolproof?

iv) An Investors' Guide to Buying Contemporary Indian Art

• You must really like what you are buying. Avoid buying purely for the name of the artist. You might
get stuck with works of art you cannot stand.
• Visit as many exhibitions as you can to look at different works by a number of artists. Read up as
much as you can on the art you are planning to buy and on the artist. It pays to do your homework.
• Know the artist. Talk to the artist and find out what they are about and what their art is about. Some

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works can look fantastic, but they could be by gimmicky artists who are copying
something. Most serious art collectors will always personally know the artist behind the artwork they
collect.
• Try and catch the artist when he or she is young. The work will be affordable.
• Be prepared to wait for the art to appreciate. If you buy any senior artist, it will appreciate in 10 years.
The value of art usually goes up if the artist is older or if he or she passes away.
• Artists tend to paint in series. A successful series by any artist is always worth buying; good gallery
owner will guide you on this. Buy art from a good series.
• Check the age of the painting to see if the painting you are buying is a new piece or van old one. An
older piece is usually a better investment, because it has stood the test of time. A new art experiment
may or may not be worth the price.
• Scout about for a reputed art dealer whom you can trust. Ask around and get a good reference for the
dealer. When you want to sell your art, always go to a reputed gallery which will be able to evaluate the
work properly and advise you well. The art world is notorious for frauds and fakes, so be warned.
• Never be compelled to buy art as soon as you enter an exhibition. The biggest collectors seldom turn
up at openings and at exhibitions.
• Look after your art purchases as you would look after jewellery

v) Art Fund

Yes, an Art Fund has been launched by Osian. The fund will reach out to around 1500 of the World’s
Top buyers. This fund is specially for Indian Residents.

Excerpts from the CNBC-TV18’s Exclusive Interview with Neville Tuli, the Chairman of Osian:

Q: Could you explain to us what this product is all about and how it will
work?

A: Basically it is an art fund. We have an intention that over the next 3-4 years, we will be able to
create a mutual fund industry, bring in the middle classes, 300 - 400 million Indians to take a stake in
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the cultural heritage of our country. Given the legal framework today, the fund under
the Indian Trust Act is the most efficient institutional platform we can create. It is a private placed fund
and we reach out to around 1500 of the top buyers around the world. This fund is specifically for Indian
residents. Hopefully it will show the country that art is not just an aesthetic and historical object, but it
also has a financial and developmental role. It is one of the greatest sustainable, credible assets of every
country across time and now this institutionalization process has taken it a step forward.

Q: Where do you find art prices now?

A: People have been talking about bubbles for 100 years. When the price was INR 1 lakh it was a
bubble, when it is INR 10 lakh it is still a bubble. That simply shows the ignorance and lack of
historical perspective. Indian art is still at ground level one. Its infrastructure is at a very nascent stage.

If one compares the basic knowledge, institutional framework, legal framework and the knowledge-
nurturing framework with the west, we are around 20-30 years behind. We have a long way to go
before we could actually turn and stabilize at that 12-15% per annum rate, which the west is achieving.

It is just because most of the learning curve for most of the audience is still at ground zero, and 100
years of neglect has been focused into about 8-10 years of selling, and of course the media hype that
people feel everything has moved very quickly.

But the infrastructure and the knowledge base, which supports any great market, is still at ground zero.
For instance, take the number of leading artists, the kind of museum archival library infrastructure, the
legal framework, and a host of other factors.

In my perspective there is a long way to go and there is great wealth to be created not just for the
individual and the institution but also for the public. For that we have to change certain framework and
that is a 3-5-year journey, atleast.

Q: What has been the experience from abroad for a fund like this, both
in terms of interest and performance?

A: International funds by and large have failed because they broke the cardinal rule about art funds; that
it should not be a financial institution that starts an art fund but an arts institution. Finance institution

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will never understand aesthetics and history. It is aesthetics and history, which gives
value to art. Finance - wealth is a by-product.

People in the west are happy achieving that return because of its stability, because of its ability to ride
the crisis, the depression, all kinds of downturns and as a result also having a low correlation between
equity markets and the art market.

So by and large the west is now much happier with art funds, pension funds and railway funds. They
still have very little understanding of what a great art fund is capable of doing. Hopefully India will
show them the way.

Q: What might be the benefits of investing in a fund like this?

A: If an individual goes out to buy a piece of art, he has to pay 15-20 % commission. If there is no VAT
registration, he will lose 12. 5% VAT when dealing with a registered dealer. When it is sold another 15-
20% commission must be paid. Then if it is sold in less than three years, 33.8% short- term capital
gains must be paid. If it is sold after three years 20% capital gains must be paid. That means one has to
make 65-70% before making the first 1%.

Yes, there is capital appreciation on paper but when it comes to actually transforming that into cash
returns, it’s just a myth. Now with the whole market reaching a certain maturity you need an
institutional platform, which can exploit the economic gain for the individual investors and slowly for
the public at large.

Q: What would be a rational expectation from such a fund over a three-

year period since that is the lock-in and people have been a little taken
away by the kind of returns some of these artists might have provided in
the last 12-18 months?

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A: Price appreciation is totally different from the rate of return you could expect
from your investment but art is a new asset, it is an asset in the making. It has to show a certain
performance to the financial world before it can be taken seriously and if we cannot outperform all
existing asset basis, there would be something fundamentally wrong with the whole concept.

So if one’s opportunity cost in the market today would be 20-25%, obviously one cannot guarantee
anything. That is not in anyway the intention, but I would be disappointed if any art fund that knows its
subject well, earns less that 30-35% per annum tax free for its clients.

Q: You said that there is very low co-relation between equities and art,
has there been any fall out in the art market because of the correction in
the stock market in India?

A: No, not at all. Although obviously there is a linkage as a country’s confidence and economic growth
changes but those are long-term macro factors and the India story is still a very positive one across the
world. The volatility and corrections we have seen in the stock market do not really affect art prices.

Art is determined by very long-term aesthetic and historical factors and those are the things in which,
greater the knowledge base and dissemination of information, deeper and stronger the market,
especially in times of downturns.

Q: The fund has already opened, what sort of response have you seen?

A: It has had a great response and we will easily raise what we had targeted. The responsibility of our
fund is to go into the middle of the public accountability, get yourself scrutinized, educate the public,
excite them, ask questions and open up a whole process by which you raise and create wealth.

Many people who call themselves fund raisers, raise money and then quietly go away and no one
knows what is happening. That is not the purpose of our fund. Obviously, we have to carry a whole host
of institutions; individuals and it will succeed in a positive manner.

f) Derivatives and Commodities

i) Derivatives Market In India

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Derivative markets can broadly be classified as commodity derivative market and

financial derivatives markets. As the name suggest, commodity derivatives markets trade contracts for
which the underlying asset is a commodity. It can be an agricultural commodity like wheat, soybeans,
rapeseed, cotton, etc or precious metals like gold, silver, etc. Financial derivatives markets trade
contracts that have a financial asset or variable as the underlying. Financial derivatives are used to
hedge the exposure to market risk. The commodity derivatives differ from the financial derivatives
mainly in the following two aspects: Some of the major market players in commodities market are: -

• Hedgers, Speculators, Investors, Arbitragers

• Producers - Farmers
• Consumers - refiners, food processing companies, jewelers, textile mills, exporters & importers

ii) Commodities Market In India

India has a long history of futures trading in commodities. In India, trading in commodity futures has
been in existence from the nineteenth century with organized trading in cotton, through the
establishment of Bombay Cotton Trade Association Ltd. in 1875. Over a period of time, other
commodities were permitted to be traded in futures exchanges. Spot trading in India occurs mostly in
regional mandis and unorganized markets, which are fragmented and isolated.

There were booming activities in this market and at one time as many as 110 exchanges were
conducting forward trade in various commodities in the country. The securities market was a poor
cousin of this market as there were not many papers to be traded at that time.

The era of widespread shortages in many essential commodities resulting in inflationary pressures and
the tilt towards socialist policy, in which the role of market forces for resource allocation got
diminished, saw the decline of this market since the mid-1960s. This coupled with the regulatory
constraints in 1960s, resulted in virtual dismantling of the commodities future markets. It is only in the
last decade that commodity future exchanges have been actively encouraged. However, the markets
have been thin with poor liquidity and have not grown to any significant level.

Indian Policy makers have traditionally coped with the uncertainty and risks associated with price
volatility by resorting to policy instruments which attempted to minimize or eliminate price volatility -

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a virtually closed external trade regime, price control, pervasive government

controls on private sector activities extensive market interventions and crop insurance.

Liberalization of Indian economy since 1991 recognized the role of market and private initiative for the
development of the economy. The much maligned market instruments such as the futures trading were
also given due recognition. After some halting efforts since 1994 when Prof. Kabra Committee
submitted its report, the late 1990s spilling into the new millennium, saw some bold initiatives in the
commodity market.

A three-pronged approach has been adopted to revive and revitalize this market. Firstly, on policy front
many legal and administrative hurdles in the functioning of the market have been removed. A statement
in the first ever National Agriculture Policy, issued in July, 2000 by the government that futures trading
will be encouraged in increasing number of agricultural commodities was indicative of welcome
change in the government policy towards forward trading. Secondly, strengthening of infrastructure and
institutional capabilities of the regulator and the existing exchanges received priority. Thirdly, as the
existing exchanges are slow to adopt reforms due to legacy or lack of resources, new promoters with
resources and professional approach were being attracted with a clear mandate to set up demutualised,
technology driven exchanges with nationwide reach and adopting best international practices.

The year 2003 marked the real turning point in the policy framework for commodity market when the
government issued notifications for withdrawing all prohibitions and opening up forward trading in all
the commodities. This period also witnessed other reforms, such as, amendments to the Essential
Commodities Act, Securities (Contract) Rules, which have reduced bottlenecks in the development and
growth of commodity markets. Of the country's total GDP, commodities related (and dependent)
industries constitute about roughly 50-60 %, which itself cannot be ignored.

Most of the existing Indian commodity exchanges are single commodity platforms; are regional in
nature, run mainly by entities which trade on them resulting in substantial conflict of interests, opaque
in their functioning and have not used technology to scale up their operations and reach to bring down
their costs. But with the strong emergence of: National Multi-commodity Exchange Ltd., Ahmedabad
(NMCE), Multi Commodity Exchange Ltd., Mumbai (MCX), National Commodities and Derivatives
Exchange, Mumbai (NCDEX), and National Board of Trade, Indore (NBOT), all these shortcomings
will be addressed rapidly. These exchanges are expected to be role model to other exchanges and are
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likely to compete for trade not only among themselves but also with the existing
exchanges.

The recent policy changes and upbeat sentiments about the economy, particularly agriculture, have
created lot of interest and euphoria about the commodity markets. Even though a large number of the
traditional exchanges are showing flat volume, this has not weakened excitement among new
participants. Many of these exchanges have been permitted with a view to extend the culture and
tradition of forward trading to new areas and commodities and also to introduce new technology and
practices.

The current mindset of the people in India is that the Commodity exchanges are speculative (due to non
delivery) and are not meant for actual users. One major reason being that the awareness is lacking
amongst actual users. In India, Interest rate risks, exchange rate risks are actively managed, but the
same does not hold true for the commodity risks. Some additional impediments are centered around the
safety, transparency and taxation issues.

Which Commodities are suitable for Future Trading?

The following are some of the key factors, which decide the suitability of the commodities for future
trading: -

• The commodity should be competitive, i.e., there should be large demand for and supply of the
commodity - no individual or group of persons acting in concert should be in a position to influence the
demand or supply, and consequently the price substantially.
• There should be fluctuations in price.
• The market for the commodity should be free from substantial government control.
• The commodity should have long shelf life and be capable of standardization and gradation.

Need For Futures Trading In Commodities

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Commodity Futures, which forms an essential component of Commodity Exchange,

can be broadly classified into precious metals, agriculture, energy and other metals. Current futures
volumes are miniscule compared to underlying spot market volumes and thus have a tremendous
potential in the near future.

Futures trading in commodities results in transparent and fair price discovery on account of large-scale
participations of entities associated with different value chains. It reflects views and expectations of a
wider section of people related to a particular commodity. It also provides effective platform for price
risk management for all segments of players ranging from producers, traders and processors to
exporters/importers and end-users of a commodity.

It also helps in improving the cropping pattern for the farmers, thus minimizing the losses to the
farmers. It acts as a smart investment choice by providing hedging, trading and arbitrage opportunities
to market players. Historically, pricing in commodities futures has been less volatile compared with
equity and bonds, thus providing an efficient portfolio diversification option.

Raw materials form the most key element of most of the industries. The significance of raw materials
can further be strengthened by the fact that the "increase in raw material cost means reduction in share
prices". In other words "Share prices mimic the commodity price movements".

Regulatory Body

The Forward Markets Commission (FMC) is the regulatory body for commodity futures/forward trade
in India. The commission was set up under the Forward Contracts (Regulation) Act of 1952. It is
responsible for regulating and promoting futures/forward trade in commodities. The FMC is
headquartered in Mumbai while its regional office is located in Kolkata. Curbing the illegal activities of
the diehard traders who continued to trade illegally is the major role of the Forward Markets
Commission.

iii) Why Commodities Market?

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India has very large agriculture production in number of agri-commodities, which

needs use of futures and derivatives as price-risk management system.

Fundamentally price you pay for goods and services depend greatly on how well business handle risk.
By using effectively futures and derivatives, businesses can minimize risks, thus lowering cost of doing
business.

Commodity players use it as a hedge mechanism as well as a means of making money. For e.g. in the
bullion markets, players hedge their risks by using futures Euro-Dollar fluctuations and the international
prices affecting it.

For an agricultural country like India, with plethora of mandis, trading in over 100 crops, the issues in
price dissemination, standards, certification and warehousing are bound to occur. Commodity Market
will serve as a suitable alternative to tackle all these problems efficiently.

iv)Problems faced by Commodities Markets in India

Institutional issues have resulted in very few deliveries so far. Currently, there are a lot of hassles such
as octroi duty, logistics. If there is a broker in Mumbai and a broker in Kolkata, transportation costs,
octroi duty, logistical problems prevent trading to take place. Exchanges are used only to hedge price
risk on spot transactions carried out in the local markets. Also multiple restrictions exist on inter-state
movement and warehousing of commodities.

v) Risks associated with Commodities Markets

No risk can be eliminated, but the same can be transferred to someone who can handle it better or to
someone who has the appetite for risk. Commodity enterprises primarily face the following classes of
risks, namely: the price risk, the quantity risk, the yield/output risk and the political risk. Talking about
the nationwide commodity exchanges, the risk of the counter party (trading member, client, vendors
etc) not fulfilling his obligations on due date or at any time thereafter is the most common risk.

This risk is mitigated by collection of the following margins: -

• Initial Margins

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• Exposure margins
• Market to market of positions on a daily basis
• Position Limits and Intra day price limits
• Surveillance

Commodity price risks include: -

• Increase in purchase cost vis-à-vis commitment on sales price

• Change in value of inventory
• Counter party risk translating into commodity price risk

vi) Key Factors for Success of Commodities Market

The following are some of the key factors for the success of the commodities markets: -

• How one can make the business grow?

• How many products are covered?
• How many people participate on the platform?

vii) Key Factors For Success of Commodities Exchanges

The following are some of the key factors for the success of the commodities exchanges: -

Strategy, method of execution, background of promoters, credibility of the institution, transparency of

platforms, scaleable technology, robustness of settlement structures, wider participation of Hedgers,
Speculators and Arbitrageurs, acceptable clearing mechanism, financial soundness and capability,
covering a wide range of commodities, size of the trade guarantee fund, reach of the organization and
adding value on the ground. In addition to this, if the Indian Commodity Exchange needs to be
competitive in the Global Market, then it should be backed with proper "Capital Account
Convertibility".

The interests of Indian consumers, households and producers is most important, as these are the people
who are exposed to risk and price fluctuations.

viii) Key Expectations Of Commodities Exchanges

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The following are some of the key expectations of the investor's w.r.t. any
commodity exchange: -

• To get in place the right regulatory structure to even out the differences that may exist in various
fields.
• Proper Product Conceptualization and Design.
• Fair and Transparent Price Discovery & Dissemination.
• Robust Trading & Settlement systems.
• Effective Management of Counter party Credit Risk.
• Self-Regulation to ensure: Overview of Trading and Surveillance, Audit and review of Members,
Enforcement of Exchange rules.

ix) Future Prospects

With the gradual withdrawal of the government from various sectors in the post-liberalization era, the
need has been felt that various operators in the commodities market be provided with a mechanism to
hedge and transfer their risks. India's obligation under WTO to open agriculture sector to world trade
would require futures trade in a wide variety of primary commodities and their products to enable
diverse market functionaries to cope with the price volatility prevailing in the world markets.
Government subsidy may go down as a result of WTO. The farmer will have to look at ways of being
in a position to trade on commodity exchanges in future. Indian markets have recently thrown open a
new avenue for retail investors and traders to participate: commodity derivatives. For those who want to
diversify their portfolios beyond shares, bonds and real estate, commodities is the best option.

Following are some of the applications, which can utilize the power of the commodity markets and
create a win-win situation for all the involved parties: -

Regulatory Approval / Permission to FII's for trading in the Commodity Markets

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FII's are currently not allowed nor disallowed under any law. As, they have added
depth to the equity markets; they will add depth to the commodities markets, since they globally know
the commodities.

Active Involvement of Mutual Fund Industry in India

Currently Mutual Funds are prohibited from not using derivatives apart from hedging. Mutual Funds as
investors can invest in gold and get returns as they get from debt instruments, equity markets. AMFI &
SEBI need to collectively work towards the same. Launch of the "Commodity Funds", by the Mutual
Funds in India, can serve as a newer investment avenue for investors.

Permission to Banks for acting as Aggregators and Traders

If institutions join this market, confidence of the investor increases. If a bank like SBI decides to invest
in the market, the confidence of investors in the markets goes up. Banks can on behalf of the farmer's
hedge their risks, and get a fee income. Banks can have limits, which can be set up by the RBI. This
requires a change in the Banking Regulation Act, which will take a long time. This way it can be a win-
win-win situation for the market, the banks, and the farmers.

Active Involvement of Small Regional Stock Exchanges

The existing regional stock exchanges (RSE), which have good trading infrastructure in place but are
having tough time due to tiny volumes, should be used for trading commodities. The skills and
infrastructure of these RSE's will be very useful to get a jump ahead in terms of market development at
low cost.

Newer Avenues for trading in Foreign Derivatives Exchanges

Millions of people in India use gold as a financial asset and are constantly exposed to fluctuations in the
price of gold. Hence from the viewpoint of India's securities industry, it would be great to trade gold
futures globally on foreign derivative exchanges - it would yield higher revenues as well as raise
sophistication.

Steady Transition towards Electronic Warehouse Receipts

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Commodity Exchanges in India are expected to contribute significantly in

strengthening Indian Economy to face the challenges of globalization.

Indian markets are poised to witness further development in the areas of "Electronic Warehouse
Receipts" (similar to Demat Shares), which would facilitate seamless nationwide spot market for
commodities.

x) Impact of WTO Regime

India being a signatory to WTO may open up the agricultural and other commodity markets more to the
global competition. India's uniqueness as a major consumption market is an invitation to the world to
explore the Indian market. Indian producers and traders too would have the opportunity to explore the
global markets. Price risk management and quality consciousness are two important factors to succeed
in the global competition. Indian companies are allowed to participate in the international commodity
exchanges to hedge their price risk, resultant from export and import activities of such companies. But
due to the compliance issues and international exchange rules, 90 % of the commodity traders and
producers are not in a position to participate in the international exchanges.

Convergence of Various Markets

In the near future the integration of the international equity, commodities, forex and debt would
enhance the business opportunities. It will also create specialized treasuries and fund houses that would
offer a gamut of services, thus providing comprehensive risk management solutions to India's corporate
and trade community.

Amendments in the Commodities Act and Implementation of VAT

Amendments to Essential Commodities Act and implementation of Value-Added-tax would enable

movement of across states and more unified tax regime, which would facilitate easier trading in
commodities.

Introduction of Options Contract

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Options contracts in commodities are being considered and this would again boost
the commodity risk management markets in the country.

Thus, Commodity derivatives as an industry is poised to take-off, which may provide the numerous
investors in this country with another opportunity to invest and diversify their portfolio.

Strong Emergence of the Yellow Metal - GOLD

Interestingly, gold turned out to be the strongest major currency last fiscal (2002-03) as it outperformed
the other major currencies by between 9 and 25 % over the year. The yellow metal outperformed the
major stock indices too. Over the course of the year, gold outperformed the dollar by 25 %, the yen by
14 % and the pound sterling by 13 %, the euro by 9 %and the Swiss franc by 7 %.

India being the largest buyer of Gold in International market can be the market leader in respect of Price
discovery and Price formation in International market, if a transparent Gold Exchange at national level
is set up with widespread participation.

Structured Commodity Financing: (Asset-backed Financing)

In Structured Finance, collateral is assigned and an automatic reimbursement procedure is devised. It

can be made available as receivable-backed financing and inventory financing. The clients retain the
economic benefits and risks of ownership by transacting a swap. For successful implementation of
Structured financing in India, the rural banking infrastructure should be made strong, the government
should come across with strong policies and lastly there should be increased awareness and training
amongst common masses.

Launch of "Weather Derivatives", through the commodity exchanges in the near future. Globally, it is
done on a temperature basis, whereas in India it could be done on rainfall basis.

xi) The Road Ahead

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The following 4-step action plan sums up the road ahead for commodity markets in
India: -

1. Seeking changes in Banking Regulation

• Banking Regulation Act to be modified.

• Accreditation of warehouses and quality of products furthers bank lending against commodities.
• Change in Priority sector norms.
• Lending against commodities to be considered priority sector lending.
• Banks to lend against bullion.
• Need for hallmarking.

2. Changing the face of Warehousing

• Electronic warehouse receipt (EWR) to be legally recognized.

• EWR to be a negotiable instrument.
• Depositories Act to be amended to cover commodities.
• SEBI to notify that FMC is regulatory body for Demat commodities.

3. Inducing Policy changes

• Introduction of options.
• Will ably substitute the MSP programme of government.
• Permit weather derivatives.
• Redefining commodities.
• Goods not covered under 'securities'.
• Products not covered under SCRA.
• Physical delivery not to be mandatory.

4. Budget proposals relating to Commodities

• Integration of commodity market with securities market.

• Service tax on forward contracts to affect commodity brokers.
• Significant omissions in light of other announcements.

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• Weather derivatives.
• Bank investment in commodities.

xii) Action Plan: (As suggested by Dr. Kewal Ram - Chairman FMC)The following steps need to
be taken by the exchanges, regulator and the government in order that this market develops in a robust
manner and the benefits flow to the ultimate beneficiaries like the consumers, processors, exporters and
farmers etc. -

• To mount a massive awareness programme among the potential beneficiaries about the benefits
and risks of futures trading.
• Disseminate futures prices widely so that stakeholders can take informed decisions.

• Develop other allied activities such as warehousing, standardization and gradation; collateral
financing linked to futures markets.
• Reforms in physical market to develop efficient and integrated national market.
• Make necessary amendments in the FC(R) Act for permitting futures in intangible commodities
and options trading, which are at present prohibited.
• Allow participation of mutual funds and financial institutions in the commodity market.
• Coordination with other segments of the financial market such as banking, debt and capital
market.
• Above all, to upgrade and empower regulator to provide effective and efficient leadership for the
development and regulation of the market.

xiii) Comparative Analysis of Commodity and Equity Markets

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Factors Commodity Markets Equity Markets

Percentage Gold gives 10-15 % returns on
Returns the conservative basis.
Initial Margins Lower in the range of 4-5-6%
Arbitrage Exists on 1-2 month contracts.
Opportunities There is a small difference in
prices, but in case of
commodities, which is in large
tonnage it makes a huge
difference.
Price Price movements are purely
Movements based on the supply and demand.
Price Changes Price changes are due to policy
changes, changes in tariff and
duties.
Future Predictability of future prices is
Predictability not in the control due to factors
like Failure of Monsoon and
Formation of El-ninos at Pacific.
Volatility Lower Volatility
Securities Securities Transaction Act is not
Transaction Act applicable to commodity futures
Application trading.
Returns in the range of 15-20 %
on annual basis.
Higher in the range of 25-40%
Significant Arbitrage
Opportunities exists.
Prices movements based on the
expectation of future
performance.
Price changes can also be due to
Corporate actions, Dividend
announcements, Bonus shares /
Stock splits.
Predictability of futures
performance is reasonably high,
which is supplemented by the
History of management
performance.
Higher Volatility
Securities Transaction Act is
applicable to equity markets
trading.

ixv) Some Interesting Facts

• Commodities in which future contracts are successful are commodities those are not protected
through government policies; (Example: Gold/ Silver/ Cotton/ Jute) and trade constituents of these
commodities are not complaining too. This should act as an eye-opener to the policy makers to leave
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pricing and price risk management to the market forces rather than to administered
mechanisms alone. Any economy grows when the constituents willingly accept the risk for better
returns; if risks are not compensated with adequate or more returns, economic activity will come into a
standstill.
• Worldwide, Derivatives volumes of non-US exchanges in the last decade, has been increasing as
compared to the US Exchanges.
• Commodities are less volatile compared to equity market, but more volatile as compared to G-
Sec's.
• The basic idea of Commodity markets is to encourage farmers to choose cropping pattern based
on future and not past prices.
• Industry in India runs the raw material price risk, going forward they can hedge this risk.
• Commodities Exchanges are working with banks to provide liquidity to retail investors against
holdings such as bullion, cotton or any edible oil, much like loan against shares.

xv) Conclusion

The commodity market is poised to play an important role of price discovery and risk management for
the development of agriculture and other sectors in the supply chain. New issues and problems will
surface as the market evolves. The government, regulator and other stakeholders will need to be
proactive and quick in their responses to new developments. The globalization of markets under the
WTO regime makes it all the more urgent to develop these markets to enable our economy, especially
agriculture, to meet the challenges of new regime and benefit from the opportunities unfolding before
us.

With risks not being absorbed any more, the idea is to transfer it. As the focus is shifting to "Manage
price change rather than change prices", the commodity markets will play a key role for the same.

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Key Elements of Wealth Management

1) Knowledge

As they say “Knowledge is Power”, it is very critical to be abreast of the current financial market,
Economic Conditions in and around the Country, Taxation Policies, Rules and Regulations of the
regulatory authorities like Securities and Exchange Board of India (SEBI), Foreign Exchange
Management Act (FEMA), Insurance Regulatory Authority of India (IRDA) and impact of the new
policies/announcements on the market and on the Portfolio’s of the clients being served by the
Wealth Manager(s).

2) Understanding the Customer and Customer Requirements

Historically, financial organizations have organized along traditional corporate boundaries. Today, it
is important for organizations to step back and look at the range of products, services and delivery
options available; match these with customer needs and desires; determine where various required
skill sets reside in the organization; and then organize so as to optimally deliver what the customer
needs. The starting point of the entire process is, “Understanding the Customers needs, his future
financial requirements, expected returns and his risk appetite, (though returns and risk appetite
would be directly related to each other) also it is very important to know and understand his current
Investment Portfolio (if any).” If the Wealth Manager makes a mistake here, the product offering may
change, eventually it may lead to a bigger problem for the investor and the Advisor, therefore, this is
the most important step is the Process of Wealth Management.

To understand the in-depth requirement of the customer it is advisable to note down all the possible
needs envisaged by the Investor, including Retirement Planning etc., in ascending order, estimated
amount required by him at different point in time in future and when would he require that amount?
Then his expected returns, more importantly his Risk Appetite, his preferred asset class. And his

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current Portfolio (if any). The entire process of understanding the customer needs,
his risk appetite, expected returns etc., should be recorded before advising/selling any Product. The
entire process of understanding and recording the above mentioned information, can be termed as
‘Investor Profiling’. The same is discussed with a Sample Investor Profile in the next chapter.

3. Investor’s Profile

A Sample of an Investor’s Profile is appended below:

“INVESTOR PROFILE”

Name : ______________________________________

What is your current Wealth and Asset Allocation? Give rough break up
in % Terms.

o Total Value INR __________

• Savings account & Fixed Deposit with banks ________

• Bonds & Debt Mutual Funds ________
• Equity & Equity Funds ________
• Real Estate ________
• Insurance ________
• Gold ________
• Art ________
• Others (Commodities, Overseas investments etc.) ________

Please give us the details of all holdings with acquisition details and acquisition dates, if possible.

o What are your existing Insurance Policies?

Cover (Value) Annual Premium INR

Endowments ______________ ______________

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Pure Risk ______________ ______________

Money Backs ______________ ______________

Health Insurance ______________ ______________

Pension Plan ______________ ______________

o What would your annual net cash flows be?

Net Annual Cash flows INR ______________

INVESTMENT OBJECTIVE

o What is the ultimate purpose of your investable assets?

_____ Preservation of capital (No appetite for risk)

_____ Regular cash inflows (Funds needed periodically for expenses)

_____ Liquidity (Money possibly required for other purposes, to be invested in very liquid or short term
assets)

_____ Growth (May need money in 2-3 years)

_____ Retirement (Long term investments)

o What are the specific needs that you envisage at this time? (Needs could
be education, marriage of children/family member(s), an asset purchase etc.)

Need Details of Need Amount Needed When

1
2
3

A qualitative view on other needs

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o What is the average time frame that you normally

envisage for your investments?

□ Less than six months

□ Six months to one year

□ One year to three years

□ More than three years

EQUITY RETURN EXPECTATIONS

o Specifically with regard to equities, what is the return you are

expecting from your investments in equities, over the long-term?

□ 0-8% growth - Safe, relatively low risk equities or debt as a alternative

□ 8 - 18% growth - Medium risk, medium returns

□ >18% growth - High risk of returns, and principal erosion

o Alternatively, what is the level of risk you are willing to take on your
wealth?

□ I do not want to risk interest or principal

□ I will only be comfortable with small degree of risk (i.e. to income, but not to capital.)

□ I am comfortable accepting the risk that the value of my investment could decline from time to time

□ I am willing to tolerate putting my principal at risk by investing in volatile investments

o How would you rate your ability to stick with a given investment as its value fluctuates during a
market cycle?

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□ Low □ Medium □ High

EQUITY PREFERENCES

(If the client opts out for pure debt advice, skip this section)

o While designing your portfolio, it is important to understand any specific preferences for or
aversions towards any particular scrip that you may have. Is there anything that we need to keep in
mind while designing your portfolio? (E.g. do you specifically want low priced shares, or all
investment in A group only, shares which offer good dividend yields etc.)

PERSONAL LEVEL OF INVOLVEMENT

How involved do you want to be in managing your investments with us?

□ I will accept most of the advisor’s recommendations

□ I want to make all decisions concerning my investments, but receive active counseling from the bank

□ I want to make all decisions concerning my investment and require only research support

PORTFOLIO ASSET ALLOCATION

o Desired level of Risk (High/Medium/Low) ____________

o The agreed strategy on asset allocation for you, if a asset allocation portfolio is being tracked

Plan Variations from plan

(Strategic) (Tactical)

Equity or equivalent _______% +/-_______%

Debt or equivalent _______% +/-_______%

Cash or equivalent _______% +/-_______%

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o Desired level of insurance would be INR __________________________ or

o Percentage of wealth _______________

o Specific Equity Products that you would be advised on (please tick)

o Market Information _________
o Super Aggressive portfolio _________
o Trading Strategies (derivatives) _________
o Trade Ideas _________
o Stock Ideas _________
o Aggressive recommendations _________
o Conservative recommendations _________
o Other specific requirements that define the relationship on communication period, specific reports
needed, and specific needs in terms of information type, etc Any levels of equity profits/losses that
you want to work with. Any specific points defined by the advisor.

Please Note:

1. No returns are guaranteed in any asset category

2. The equity class (including derivatives) is a high risk high return asset category. Investments in this
category are subject to market volatility and investors could make sharp losses if one does not have a
long-term approach to equity investing. In some cases debt exposures also carry volatility risk. Proper
asset allocation is therefore recommended to all investors
3. In the equity category itself, which is a high risk category the risk is the highest in products based
on market information / technical and lowest in products based on fundamental recommendations.

Client Sign _________________________ Advisor Sign

_________________________

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Name _________________________ Name _________________________

Date _________________________ Date _________________________

4. Strategy Formulation

Strategy on What Product mix for the Investor, When to buy the Products selected and the steps
involved in completing the entire process is critical. The Product Mix has to be on the basis of ‘What
Investor really wants?’ Rather than ‘What the Advisor wants to sell?’

At this stage the Investor’s Profile would serve as an important tool to decide What Investor really
wants? This includes factors like his/her current assets and liabilities, liquid cash that he/she is
holding, futures inflows and outflows, number of dependents, annual income from all sources, age,
risk appetite and investment horizon (both short term and long term).

Implementation of the Strategy so decided

Based on the findings from Customer Profiling, the Advisor has to make a detailed plan on what
products to choose from the above mentioned available products in the market.

After zeroing in the Products, it is very critical to decide on the timing (though one can not time the
market however appropriate timing should be thoghtful and careful and in favour of the Investor), as
in When to buy the Products. Also what would be the cost to the customer in the products. This goes
true for the products like Real Estate, Any product which is Market linked (E.g., Equity, Unit Linked
Products).

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Customer Service

What is customer service?

Customer service is research, marketing and public relations at the most basic level. It is your bridge
to building a strong one-to-one relationship with your client. Through listening, responding and
acting on input from your customer, it is the avenue to developing current and future profits through
customer satisfaction.

Quality customer service begins when management’s philosophy and attitude are conveyed to the
customer through the front line staff (say Investment Advisor). Training and empowering your
employees provides the core to developing a fully integrated customer service program.

It has been found during the Research andsurvey of this product, that the most important thing for the
clients of this segment is “Customer Service”. 90% of the respondents have given maximum score
for Quality of Service. (Please refer Annexure I on page # 102)

Can customer service be taught?

While specific techniques can be taught, customer service is more of a spirit where responsibility and
care for the customer is reflected in the attitude of the employee. It is best encouraged through
coaching, led example and cultivated through practice. Leadership is required to foster an atmosphere
where the employee is made comfortable with taking the risks associated with this responsibility.
Therefore selection of right kind of people is most critical job for any Wealth Management
Company.

One of the most controllable features that differentiates your product from the competition is the
level of service you provide. Any business can sell the product you offer – many can offer a lower
price. The single feature that can shift the weight on the price/value scale is the value added level of
service you provide. Quality is apparent when value exceeds the price. This is your competitive edge.
This "edge" generates references and not to forget references in this industry is the Key to Success.

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What kind of Services do Investors expect?

• Availability of information
• Update on the Investment Portfolio
• Convenience
• New Product offering
• Reviewing the Portfolio on mutually decided time
• To check on timely basis if the Portfolio so decided is moving toward the “ultimate”
Investment Objectives set initially.
• Modifying the allocation as and when required

7. Risk Management

What Is Risk?
Risk provides the basis for opportunity. The terms risk and exposure have subtle differences in their
meaning. Risk refers to the probability of loss, while exposure is the possibility of loss, although they
are often used interchangeably. Risk arises as a result of exposure. Exposure to financial markets
affects most investors, either directly or indirectly. When an Investor has financial market exposure,
there is a possibility of loss but also an opportunity for gain or profit. Financial market exposure may
provide strategic or competitive benefits. Risk is the likelihood of losses resulting from events such as
changes in market prices. Events with a low probability of occurring, but that may result in a high
loss, are particularly troublesome because they are often not anticipated. Put another way, risk is the
probable variability of returns. Since it is not always possible or desirable to eliminate risk,
understanding it is an important step in determining how to manage it. Identifying exposures and
risks forms the basis for an appropriate financial
risk management strategy.

Different types of Risks:

• Interest rates risk
• Credit risk
• Exchange rates risk

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• Commodities prices risk

Factors that Affect Interest Rates:
Interest rates are a key component in many market prices and an important economic barometer.
They are comprised of the real rate plus a component for expected inflation, since inflation reduces
the purchasing power of a lender’s assets. The greater the term to maturity, the greater the
uncertainty. Interest rates are also reflective of supply and demand for funds and credit risk.
Factors that influence the level of market interest rates include:
• Expected levels of inflation
• General economic conditions
• Monetary policy and the stance of the central bank
• Foreign exchange market activity
• Levels of sovereign debt outstanding
• Financial and political stability

Factors that Affect Foreign Exchange Rates

Foreign exchange rates are determined by supply and demand for currencies. Supply and demand, in
turn, are influenced by factors in the economy, foreign trade, and the activities of international
investors. Capital flows, given their size and mobility, are of great importance in determining
exchange rates.

Factors that influence the level of interest rates also influence exchange rates among floating or
market-determined currencies. Currencies are very sensitive to changes or anticipated changes in
interest rates and to sovereign
risk factors. Some of the key drivers that affect exchange rates include:
• Interest rate differentials net of expected inflation
• Trading activity in other currencies
• International capital and trade flows
• International institutional investor sentiment
• Financial and political stability
• Monetary policy and the central bank

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• Economic fundamentals
Factors that Affect Commodity Price
Physical commodity prices are influenced by supply and demand. Unlike financial assets, the value of
commodities is also affected by attributes such as physical quality and location.
Commodity prices may be affected by a number of factors, including:
• Expected levels of inflation,
• Interest rates
• Exchange rates, depending on how prices are determined
• General economic conditions
• Costs of production and ability to deliver to buyers
• Availability of substitutes and shifts in taste and consumption patterns
• Political stability, etc

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Star Companies

ONGC

ONGC has been a safe bet for investors on the likelihood of stable crude oil prices which are unlikely
to ease significantly – during the study period. High crude oil prices resulted in record profits for
ONGC – an oil exploration and production company.ONGC’s overseas acquisitions via ONGC Videsh
Limited (OVL) have also started to have a significant impact on the bottom-line. Subsidiary ONGC
Videsh has become a large E&P player in its own right and will start having a significant impact on the
parent’s fortunes. The recovery improvement program and new fields have added to its growth
prospects significantly in time.
The recent dismantling of APM (administered price mechanism) has proved to be a boon for the
companies engaged in the upstream activities. The company can now negotiate at international crude
prices unlike the prices set by the Government before April 2002. It has acquired management control
of MRPL, which marks its entry into the refinery business. All this augurs well for ONGC, with
demand for petroleum products likely to give a fillip to the revenue side and stable supply of crude to
its own refinery being the advantage on the cost side. With the acquisition of MRPL, ONGC will now
have better bargaining power to dispose off the crude it produces.

Reliance

Reliance is expected to continue its good run as the refining industry is also expected to continue its
strong performance on the back of high crude prices. Also, Reliance is not burdened with heavy
marketing losses. The company is also undertaking continuous expansion projects for its petrochemical

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business, which have added to the margins going forward. Reliance seems to be the
best bet in the sector for the medium term investor. ONGC is completing its 50th year and has already
declared a bonus issue. Reliance remains a good bet because of the strong outlook for the refining
industry. Reliance also has the most aggressive growth plans amongst the oil companies – it is putting
up a new refinery and is building new capacity in the petrochemical business while the upstream
business is also expected to start in 2008-09. Because of phasing out of the multi-fibre agreement from
January 2005, the demand for polyester should go up in the country which means the capacity addition
in polyester may also be well timed. Meanwhile, demand from user industries for polypropylene is
expected to remain strong in the medium term and the company is leveraging this opportunity by
expanding capacity. The refining capacity addition also makes eminent sense, especially in the wake of
favorable demand-supply situation in the region. During the study period, refining margins have gained
from strength to strength owing to the buoyant demand.
The tie-up with Chevron has added luster to Reliance create a large refining capacity, it will also help
develop an easy access into the global markets from a product marketing as well as facilitate
optimization of refinery crude supplies. The mammoth size of oil & gas discovery by Reliance has
definitely added more gravity to the investors’ interest seeking wealth multiplication.

DLF
DLF has been a pleasant avenue for laggards of equity market. The real estate sector has also been
witnessing hectic activities, in tandem with the economic prosperity of the country. The major bonus
with the company has been its presence in major urban center of the country where the real estate
prices have appreciated by three to ten times in the span of 1995-2005 decade. The existing land bank
and the developable area have made the company numero uno in the real estate sector. The laurel
wreath has been the valuation; which it was able to command for its latest initial public offer. In
September 2003 the company was valued at Rs 112 crore (Rs 1.12 billion). That is over the past 45
months, DLF has seen an annualized appreciation of over 500 per cent going by the valuation it is
commanding for its IPO in 2007.
The net asset value of the company which is essentially a measure of cash flows of the firm from its
entire land bank discounted by its cost of capital (CoC) less the debt in its books, is pegged in the range
of Rs 70,000 crore (Rs 700 billion) to 95,000 crore (Rs 950 billion).

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The latest plans are for development of special economic zones. Joint venture with
US-based Hospitality Company Hilton, expansion of operations in multiplex cinemas and a possible
wind power business are some of the new additions made.
One key advantage is that DLF's average cost of acquisition of land is fairly low at around Rs 274 per
square feet which will enable it sit out the cycles and not indulge in distress sale ever.
Some key determinants of profitability for real estate companies apart from the land cost, is the
developer's land acquisition and aggregation skills, relationship with the state authorities and reputation
-- on all these DLF scores highly.
The company intends to focus on its core competence while partnering with leading global players
such as Nakheel (SEZs), Laing O'Rourke (construction), ESP (engineering and design), Feedback
Ventures (project management) for better execution.

Bharti Airtel Ltd

The telecom sector has grown at a scorching pace over the past few years aided by enabling
regulations, heightened competition resulting in across-the board lowering of telecom tariffs, higher
disposable income due to India's strong GDP growth rates and greater coverage of India's landscape by
mobile service operators.
The industry has recorded good subscriber growth rates, owing to low penetration levels, heightened
competitive intensity, a continued fall in minimum subscription costs and tariffs leading to better
affordability for lower-income rural users, expansion of coverage area by mobile operators and
government support
With teledensity in India reaching from 5.1 in 2003 to 23.89 in 2007 the impact on valuations of
telecom player have been enormous. The mobile subscriber base has increased by a 91% CAGR, over
2002-2007 to 162mn and to 201mn in August 2007.

The opening up of NLD & ILD sector has made the investors in hot pursuit. The teledensity in the
country is very low. Besides new avenues like BPO business, broadband business, Value added
services like M-Commerce, M-Marketing, offer venues of additional revenue. Also technologies like
NGN, 3G, WiMAX, will open up new frontier of business.

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Bharti Airtel has been the top pick in the Telecom sector, given its flawless
execution track record, market leadership position, rapidly growing other business segments like long
distance and enterprise, and embedded value in the form of its tower business, Bharti Infratel.

The company is taking initiatives to expand it’s suite of services and become 'fully integrated
entertainment players' rather than remaining merely telephone companies. The company is making
investments in businesses such as DTH and IPTV with a view to tap a greater share of the
entertainment spend of consumers

With Indian economy taking a leap banking sector was obvious to perk up.

ICICI bank

ICICI bank the largest private sector bank, has also witnessed action during the study period since the
market is ready to add premium for the private banks for the growth and lower NPA. The prospect for
asset sale of Dabhol project, in which the bank had an exposure, has improved sentiment for the stock.
ICICI Bank is one of the more profitable banks in the country also it has a strong position in almost all
fast-growing financial service segments. ICICI bank’s net interest margin (excess of rate at which
funds are lent over the rate of borrowing) is considerably lower than that of many private banks. ICICI
has valuable investments in securities broking, asset management and insurance. Investors are also
hoping for a jackpot in the value of its investments in the equity shares of other firms. Also, there are
some plus points in the form of value of valuable investments in securities broking, asset management
and insurance which add to the value of the stock.

The stellar growth has been witnessed in ICICI Bank's Loan book growth at a CAGR of 40% over
FY2003-06 to Rs 1,146,163cr. Rural Banking continues to be the key focus area of the bank. ICICI
Bank has set up 8700 customer touch points and is targeting to have100 touch points in each district of
the country. Of late the Bank received approval for opening up of new branches and received licenses
for the same, which is the key positive trigger for the bank. With the opening up of new branches the
bank will facilitate growth in to retail assets and access to low cost funds. Bank's retail focus is the key

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driver for growth in fee income as retail banking contributes 58% of the banks total
fee income. The higher fee income growth model augurs well with the banks future growth strategy
and boosts investor’s confidence in the bank. Healthy growth in the fee income has helped the bank in
reporting a sustained profitability, despite depressed margins. However going forward higher fee
income contribution will facilitate sustained growth in the bottom-line and insulate banks future
earnings against lower treasury gains.With Banks aggressive provisioning strategy and healthy
recoveries, the bank reduced its Gross NPA's from Rs 5027cr in FY2003 to Rs 2222.6cr in FY2006
and Net NPA's came down from 5.21% in FY2003 to 0.72% in FY2006.

State Bank of India

State Bank of India is the largest bank in the country in terms of branch network, Balance sheet size,
Profits, Deposits and employees. The bank had a total balance sheet size of around 400,000 crore and a
branch network in the region of 9000 in 2005. All this articulates the fact that why investors are keen
on to be a part of the growth story.
The bank has around 18 associate banks in the country and has a significant presence overseas through
its international subsidiaries. The Bank accounts for a huge 25% of total banking business in the
country till 2005. The Bank has relationships with the nearly 80% of the corporates in the country. It is
also among the largest retail banks in the country. SBI has a customer base in the region of 90 million.
The other subsidiaries apart from its associate banks are SBI Life Insurance Ltd. which houses the
Insurance business of the bank, SBI caps which is the investment banking arm and SBI Funds
Management responsible for SBI Mutual fund. The Bank also has numerous international subsidiaries
to carry its overseas business.
The banking sector has been rerated in the light of the recent developments in the banking sector such
as buyback of G-Secs by the Government and Securitization Bill which would benefit SBI the most.
The pros with SBI are numerous like the bank is expected to benefit significantly from the credit
expansion in the economy, the strong pan India franchisee, should help the bank further scale its retail
assets at a faster rate, change in the corporate loan mix towards mid corporates should improve yields
and maintain NIM at around 3.2%. And the great upside in valuations could come from any further
increase in FII limit.

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CONCLUSIONS

After studying the overall concept of wealth management we can say that it has various aspects some
are favorable and friendly for the Indian economy and some are very dangerous for the Indian
economy.The customers have to beware and they have to make SWOT analysis before choosing the
wealth management option.At present Indian Economy is facing a lot of trouble by increasing inflation
and hike in fuel prices in the Indian as well as international market.

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Bibliography

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