Equity Markets Review

January 2011

Sensex Rolling Returns

N. O Y RN E ED A SN X ES E RLI G O N1 L Y R GW R T O H 2% 9 3% 5 2% 6 -% 3 1% 6 4% 4 6% 2 -1 1% -2 2% 7% 9 9 % 5% 0 27 6% -7 4% 6% 6 -4 1% 3 % 0 % 1% 6 -% 4 3% 4 -8 2% -% 4 -2 1% 8% 3 1% 6 7% 4 1% 6 2% 0 -8 3% 8% 1 9 % 1/ 3 1 3 RLI G O N L 5 R Y GW R T O H RLI G O N L 1Y 0 R GW R T O H RLI G O N L 1Y 5 R GW R T O H 0 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 2 0 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 3 0 3 1 3 2 M7 a- 9 r M8 a- 0 r M8 a- 1 r M8 a- 2 r M8 a- 3 r M8 a- 4 r M8 a- 5 r M8 a- 6 r M8 a- 7 r M8 a- 8 r M8 a- 9 r M9 a- 0 r M9 a- 1 r M9 a- 2 r M9 a- 3 r M9 a- 4 r M9 a- 5 r M9 a- 6 r M9 a- 7 r M9 a- 8 r M9 a- 9 r M0 a- 0 r M0 a- 1 r M0 a- 2 r M0 a- 3 r M0 a- 4 r M0 a- 5 r M0 a- 6 r M0 a- 7 r M0 a- 8 r M0 a- 9 r M1 a- 0 r M 1* a- 1 r P bbi y fl s r ai t o os o l 10 0 19 2 13 7 28 1 22 1 25 4 34 5 54 7 50 1 38 9 74 1 71 8 16 18 48 25 28 21 37 79 36 21 36 37 36 31 39 83 34 70 50 01 30 64 36 49 34 09 59 51 69 43 120 18 102 37 164 54 90 79 158 72 110 95 2% 0 2% 2 2% 7 1% 9 1% 3 2% 4 1% 7 1% 5 5% 3 4% 2 4% 0 3% 3 2% 4 -% 5 1% 1 0 % 9 % 1 % 1 % -% 5 8 % 5 % 2% 6 3% 0 3% 9 1% 2 2% 2 1% 1 38 / 2

2% 2 2% 0 2% 1 3% 5 2% 7 3% 1 2% 5 1% 9 2% 1 2% 6 1% 8 2% 0 1% 2 -% 2 3 % 4 % 7 % 1% 3 1% 5 1% 5 1% 0 1% 3 1% 8 13 / 2

2% 7 2% 4 2% 2 2% 0 2% 1 2% 0 1% 9 1% 3 1% 4 1% 5 1% 5 1% 5 1% 6 8 % 1% 4 6 % 1% 2 1% 2 08 / 1

Past Performance of the SENSEX may or may not be sustained in the future. * Assume Index at same level for Mar-11 for illustrative purpose * Returns for the 1 year period are shown on absolute basis ** Returns for periods more than 1 year period are shown on a compounded annualised basis Note: The base year of SENSEX is 1978-79 and the base value is 100. Please visit www.bseindia.com for the SENSEX calculation methodology

Decadal GDP growth continues to accelerate and is likely to move to 10% p.a.over next few years.

Indian Economy: In a Secular growth phase

8 7 7.2

(Grow YoY,% th, )

6 5 4 3 2
1 5 -6 91 0 1 6 -7 91 0 1 7 -8 91 0 1 8 -9 91 0

5.7 4.4

3.8

4.1 3.5

1 9 -2 0 91 00

2 0 -1 01 0

GDP grow th
Source: Anand Rathi, decadal growth is for decade ending

Indian Economy: Positive Long Term outlook

Consumption growth continues to be strong Strong traction in infrastructure spending - Roads/Power to see large investments Roads: $ 30bn worth projects to be awarded over next 2 years. (~ $ 9bn of road projects were awarded over last 2 years & $ 27bn over last 5 years) Power: 40,000 MW of capacity to be commissioned by FY2012 on a base of 160,000 MW, which entails an investment of ~ $35bn Capacity utilization in manufacturing is running at near peak levels. This will necessitate increase in Industrial capex. With steady consumption growth & accelerating infrastructure spend/ increase in industrial capex, Indias GDP growth is expected to move towards 10% p.a over next few years
Source: Estimates and GOI data

Indian Economy: Low penetration of consumer goods

Decent room for growth in mobiles itself most common durable; other durables like cars etc have larger room for growth
Mobile Telephone Subscript Per 1000 Persons ions
1600 1400 1200 1000 800 600 400 200 0 532 386 674 876 894 929 947 963 1255 1336

Passenger Cars in Use Per 1000 Persons

600 495 500 400 300 200 96 100 0 25 37 105 105 318 430 496 502

W orld

South Africa

World

Japan

Germ any

China

France

Brazil

India

India

Brazil

Japan

China

USA

USA

UK

UK

France

Source: BAML & Euro monitor -Data pertains to CY 09

South Africa

Germ any

Indian Economy: Accelerating Saving rates

Rising savings rate to support faster GDP growth - % share of working population will increase for next 3 decades.

Indian Economy: Near term challenges

Equity Markets: A Review

Sensex near 20,000 after almost 3 years. However, this time 20,000 index is fundamentally different.
P/Es have moderated from 23x to 15x . There are no material excesses in the markets unlike in 2007. Markets are valuing quality at a premium both in primary & secondary markets, unlike in 2007

Rising Oil & commodities prices, persistent high inflation, increasing interest rates & high inflation are pressure point for the economy. Large supply of paper in Jan- Mar 2011 (~30,000crs)
Sail ONGC JSPL Tisco 8000crs 10000crs 7200crs 3700crs

Equity Markets: Valuations near LT averages

BSE- 30 Index & 1- year Rolling forward P/E
32.00 27.00 22.00 17.00 12.00 7.00 Ja n- Ja n- Ja n- Ja n- Ja n- Ja n- Ja n- Ja n- Ja n- Ja n- Ja n- Ja n00 01 02 03 04 05 06 07 08 09 10 11 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 S e nse x (R HS ) Fw d P /E

By Jan-12, Sensex P/E at 19,000 level will nearly be 14x

Source: CLSA

Equity Markets: Outlook

Earnings growth outlook is decent despite stress on macro economic indicators Sensex at 19100 trades at 16x P/E on Mar-12 estimates. These is slightly lower than long-term averages. Returns over medium term should be in line with earnings growth rate i.e., 15-20% CAGR; returns of Large caps/ mid caps should not display large divergence. Spike in Oil prices is a key risk; reduction in fiscal deficit needs to be monitored closely Risk reward is favourable over medium to long term; allocation to equities should be increased in phases over 3-6 months

Investment Strategy: Asset allocation is key

Key to investing is right asset allocation i.e. how much in equities rather than when (timing) and where (stock selection) Safe capital should be invested in Short Term Bond Funds / GILT Funds Gap between bond and equity returns over medium to long term is likely to be reasonable Investors should consider increasing exposure to equities Even a 6% p.a. higher return* when compounded over long term, makes a significant difference to returns* and wealth creation.

Equity Mutual Funds are one of the best ways to invest in Stock Markets.
ADVANTAGES OF EQUITY MUTUAL FUNDS 1. Well Researched Portfolios 2. Professional Management 3. Advantages of IPOs/ Placement and big deals 4. You can invest in Small amount 5. Low cost

Real(i)ty Indian Real Estate, back on track

Real Estate Emerging steadily from the slump

The REAL ESTATE journey

Glory

Despair

Recovery

2006 - 07 High liquidity at low rates Highest levels of land buying recorded

2007 - 08 Rise in mortgage rates Rise in prices due to over supply

2008 - 09 Depressed demand, low sales Lack of trust about pricing and delivery of projects

2009 - 10

Enough signs of easing liquidity Increase in off take with stability appearing in prices

After a course correction, Back on track

Real Estate growth expected at a CAGR of 26% till 2014

Estimated Real estate market size 2009 - 2014
150 120 90 60 30 0 139.7

Sector wise demand projections 2009 -2013

Hospitality

USD billion

6% :2 R AG C 88
69.9 55.4 44

6,90,000 room nights 10 20 20 26

23 26 25 60%

24 22 23 25 80% 100% 1 2 3 4 5

110.9

7.5 million units 17 18 20 Residenital

Retail Office

43 million sq. feet 15 17 19 196 million sq. feet

15 10 0% 20% 25 40%

2009

2010

2011

2012

2013

Currently property prices present a great opportunity to investors. A peak is expected in the next 3 -5 years making real estate an attractive investment opinion. The residential segment will lead the sectors recovery: New players are expected to enter the market with properties designed keeping in mind current economic condition and consumer preferences Focus of real estate developers is the affordable housing segment which makes up 50% of the total market currently.

The best time to invest in this asset class

Indian Real Estate Index - 2009
5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 Jan- Feb- Mar- Apr- M Jun- Jul- A S Oct- N 09 09 09 09 ay- 09 09 ug- ep- 09 ov09 09 09 09

Evident signs of increasing investment activity in the real estate sector USD 15 billion, the sum raised by real estate firms in the past six months through QIPs

FDI Inflow (USD million) Housing and real estate

2006 -07 467

2007 - 08 2179

2008 - 09 2801

2009 10(E) 1181

Cumulative (2006 2009) 6628

India tops the BRIC nations Real Estate Transparency Index says Jones Lang LaSalle as per their 2008 report. Investors looking at India as a long term investment destination can be confident

Residential realty The juicy bit

Residential realty demand pegged at 7.5 million homes by 2013

Demand for residential realty to reach 7.5 million units by 2013*. Highest Cumulative demand will be seen by Mumbai (1.6 million units). Bangalore and Hyderabad to witness highest CAGR at 14%. Urbanization, development of city suburbs, increasing nuclear families and rising income levels to be the key demand drivers. Prize rationalization, reduced costs of borrowing, government sops etc. and, increasing focus on affordable housing all contribution to renewed demand. Most developers are increasing their portfolio to include affordable housing.
Residential Real Estate Demand in units (2009 13)
180000 165000 150000 135000 120000 180000 160000 140000 120000

Units

100000 80000 60000 40000 20000 0

2009 (E) 2010 (E) 2011 (E) 2012 (E) 2013 (E)

3 Factors that SAVVY Real Estate Investor consider before they by any property

1. LOCATION

2. LOCATION

3. LOCATION

Apart from location factors that you should consider before buying Real Estate 1. 2. 3. 4. 5. 6. Future Infrastructure Development Employment potential of the city Reputation of the developer Site Plan / Apartment Plan Your cash position and budget Advantage of leverage

RISKS
1. Property prices India as compared to per capita GDP are highest in the world. 2. Interest rates are high and it affects the buying power of the buyers. 3. The financial position of most of the developers is not very good. 4. Rapid Infrastructure Development

Thank you