India Excel Fund

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

1

September 2012

India
Excel Fund

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

Agenda

2

•
India
–

The Past and the Future

•
Recent Slowdown
–

Cyclical, not Structural

•
Market Valuations and Outlook

•
Portfolio Positioning


Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

3

India:

The Past,

The Future

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Birla Sun Life Asset Management Company Ltd.

4

Growth
–

Acceleration
afte
r
liberalisation

in

the 1990s

Real GDP growth (5-year Cagr)
0
1
2
3
4
5
6
7
8
9
10
FY56
FY60
FY64
FY68
FY72
FY76
FY80
FY84
FY88
FY92
FY96
FY00
FY04
FY08
FY12
(%)
Source: CMIE, NSSO, World Bank, RBI, IIFL Research

Stagnant growth
rate
for over 3
decades
–

“HINDU” rate of growth

Growth

rate
improved
slightly
post liberalization

Significant pick
-
up in the growth
rate

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6.5%

0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13E
Q2FY13E
Q3FY13E
Q4FY13E
India GDP %
Avg ('91-'12)
BoP

Crisis

East
Asian
Crisis

Dot.Com

Bust &
9/11

SARS
outbreak

GDP Growth has
remained above 5%
in the post
liberalization era,
except for a few
years affected by key
global events.

1991
-
2012 saw
various international
disasters and

various
ruling parties at the
national level



India’s Post
-
Liberalization GDP Growth

Since 91 India’s growth has averaged 6.5%. It is reasonable to assume that this is
India’s minimum growth potential if not higher.

Source: Bloomberg, BSLAMC

Global
Crisis

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6

Demographics

•
Falling dependency ratio

•
Rising middle class

•
Underleveraged &


high savings rate

Urbanization

•
Rising discretionary


consumption

•
Increasing demand for quality infrastructure

Reforms


•
Private sector participation

•
Supportive policies

•
Encourage FDI

•
Social Sector


Globalization

•
Exports
-
led growth

•
Improving goods & services mix

Infrastructure

•
Critical for economic
growth

•
Additional spending
to generate jobs

Exports

•
Rupee depreciation driving
exports & import substitution

•
Improved infrastructure and
connectivity, Government
focus

Consumption

•
Bedrock of Indian
economy

•
Remains stable

•
Long term growth
driver

Demographics
,
Reforms
,
Urbanization & Globalization provide the essential environment for
Consumption, Infrastructure & Exports to effectively grow & drive the economy

Structural Drivers: I C E
(Infrastructure
–

Consumption
-

Exports

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I C E


Infrastructure


Consumption


Exports

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8

14%
17%
20%
23%
22%
20%
34%
35%
39%
50%
36%
37%
34%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2002–03
2003–04
2004–05
2005–06
2006–07
X th Plan
2007–08
2008–09
2009–10E
2010–11E
2011–12E
XI th Plan
XII th Plan Est
Public
Private
Increasing Private sector share in
Infrastructure

Infrastructure Investment in India

High savings support investments

Infrastructure Execution Is Improving and Is Key

Source: Morgan Stanley Research, Planning Commission, CEIC, CSO, UN

Infrastructure


8

50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
85.0%
12%
17%
22%
27%
32%
37%
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012E
Savings Rate (% of GDP, LS)
Age Dependency (RS, Reverse Scale)
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
0
20
40
60
80
100
120
140
160
F1998
F1999
F2000
F2001
F2002
F2003
F2004
F2005
F2006
F2007
F2008
F2009
F2010
F2011E
F2012E
F2013E
F2014E
US$ bn
-
LS
% of GDP
-
RS
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Mar
-
04
Jul
-
05
Dec
-
05
Apr
-
06
Aug
-
06
Mar
-
07
Aug
-
07
Feb
-
08
Jun
-
08
Nov
-
08
Mar
-
09
Aug
-
09
Jan
-
10
Jun
-
10
Oct
-
10
Mar
-
11
Sep
-
11
Feb
-
12
Highway Construction Under implementation (in kms)
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I C E


Infrastructure


Consumption


Exports

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10

Increasing prosperity and income growth
are driving consumption


Rising
aspirations
,

industrialization
,
urbanization

and young
demographics

will

support
this trend



Urban population and GDP per capita, 2005

France

UK

US

Japan

Italy

Hungary

Mexico

Russia

Brazil

Korea

Singapore

HK

S. Africa

Indonesia

China

India

0

20

40

60

80

100

120

0

10,000

20,000

30,000

40,000

50,000

Nominal GDP per capita, US$

Urban population, % of total

Source: United Nations, World Bank, CEIC, Nomura Global Economics, Citigroup, CSO, CLSA, IIFL

Consumption

10

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I C E


Infrastructure


Consumption


Exports

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12

Exports % of GDP

Exports

Export Value

Source: RBI, CSO, CLSA, Morgan Stanley

o
For 2011, India recorded exports growth of 16%, the fastest in the world in volume terms during
last year, even as the global trade expansion slowed to 5%

o
Global

economic slowdown expected to generate Outsourcing business for IT firms as global

organization
s focus on cost optimization & improving efficiency

o
Improvement in India’s status as a

major exporter will also drive capacity utilization and create
demand for more infrastructure

12

0%
5%
10%
15%
20%
25%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Exports of goods and services
Exports of services
Exports of goods
(As % of GDP)
0
50
100
150
200
250
300
350
400
450
500
FY81
FY84
FY87
FY90
FY93
FY96
FY99
FY02
FY05
FY08
FY11
(USD bn)
BoP: Exports: Services
BoP: Exports: Goods
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13

Composition

Industry
27%
Agriculture
14%
Services
59%
FY12 GDP Composition
Govt
Consumption
11%
Pvt
Consumption
51%
Net Exports
5%
GCF
33%
FY12 GDP Composition
Services sector is the largest
sector

Private
consumption is the biggest
component

7%
25%
68%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Agriculture
Industry
Services
FY06-FY12 GDP Growth Contribution
54%
12%
36%
-7%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Pvt Consumption
Govt
Consumption
GCF
Net Exports
FY06-FY12 GDP Growth Contribution
Services sector is the fastest growing sector in the economy

Fixed Asset Creation
contributed almost 50% of
incremental
growth in the past 6 years

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Birla Sun Life Asset Management Company Ltd.

Indian Economy
–

an overview

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15

Services
–

Fastest growing

sector of the economy

Services sector has been the fastest growing sector of the
economy for last 4 decades

Services is the largest sector of the economy with over
55% share in GDP

4.0%
4.8%
4.4%
6.5%
7.3%
8.9%
6.6%
9.8%
12.2%
15.6%
16.4%
13.9%
1950s
1960s
1970s
1980s
1990s
2000s
Real terms
Nomi nal terms
Servi ces GDP Cagr
Servi ces share of GDP (nomi nal terms)
10%
20%
30%
40%
50%
60%
FY52
FY54
FY56
FY58
FY60
FY62
FY64
FY66
FY68
FY70
FY72
FY74
FY76
FY78
FY80
FY82
FY84
FY86
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
Source: CMIE, IIFL Research

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Birla Sun Life Asset Management Company Ltd.

16

Industry
–

Accelerated in 2000s

Industrial sector accelerated in 2000s

Industry share has increased gradually, however
declined in last 4
-
5 years

5.7%
6.4%
3.6%
5.9%
5.6%
7.7%
7.7%
11.7%
13.1%
15.5%
14.3%
13.6%
1950s
1960s
1970s
1980s
1990s
2000s
Real terms
Nomi nal terms
Industry GDP Cagr
Industry share of GDP (nomi nal terms)
10%
15%
20%
25%
30%
FY52
FY54
FY56
FY58
FY60
FY62
FY64
FY66
FY68
FY70
FY72
FY74
FY76
FY78
FY80
FY82
FY84
FY86
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
Source: CMIE, IIFL Research

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17

Agriculture
–

important

but not as critical as

before

Agri cul ture share of GDP (nomi nal terms)
15%
20%
25%
30%
35%
40%
45%
50%
55%
FY52
FY54
FY56
FY58
FY60
FY62
FY64
FY66
FY68
FY70
FY72
FY74
FY76
FY78
FY80
FY82
FY84
FY86
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
Agriculture’s share of GDP has declined from over 50%
post independence to under 20% currently

Source: CMIE, IIFL Research

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18

Private

Sector & Households
provide

the foundation

6
6
8
6
9
10
12
11
13
12
12
13
12
12
11
13
12
13
9
10
9
8
7
7
8
7
7
6
7
7
8
8
9
9
9
9
6
7
10
8
8
7
7
5
5
6
7
10
14
15
17
11
13
12
0
5
10
15
20
25
30
35
40
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
Househol d sector
Publ i c sector
Pri vate corporate sector
(GCF as % of GDP)
17
18
16
16
18
20
22
21
23
22
23
24
24
23
22
24
25
23
3
3
5
4
4
4
4
4
3
4
5
7
8
8
9
7
8
8
1
2
3
2
2
1
2
2
4
5
1
0
2
-1
-2
-5
0
5
10
15
20
25
30
35
40
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
Househol ds
Pri vate corporates
Publ i c sector
(Savi ngs as % of GDP)
Strong growth in investments is well funded by rise in savings

Source: CMIE, IIFL Research

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•
India
-

the next Greece? Unlikely!

•
External debt to GDP is low and has not moved much in many years

•
Government external debt to GDP is very low and has actually gone down


19

Source: Wikipedia

External Debt

–

No cause of concern

360
217
182
174
154
108
101
85
22
5
0
50
100
150
200
250
300
350
400
United Kingdom
Netherlands
Hong Kong
Belgium
Switzerland
Portugal
Austria
Sweden
France
Denmark
Greece
Finland
Spain
Germany
Norway
New Zealand
Italy
United States
Australia
European Union
Iraq
Canada
Qatar
Poland
Japan
Czech Republic
Argentina
Korea, South
Turkey
Sri Lanka
Iceland
Russia
Pakistan
Philippines
Vietnam
Malaysia
Indonesia
Thailand
South Africa
Peru
India
Mexico
Jordan
Chile
Colombia
Saudi Arabia
Venezuela
Brazil
Egypt
Singapore
China
Iran
Taiwan
India
External Debt to GDP ratio (%)
0
5
10
15
20
25
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12*
External Debt to GDP %
Government External Debt to GDP %
Short
-
Term Debt to Total Debt %
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20

o
Gold

is

the

biggest

culprit

in

the

current

account

deficit
…

Oil

is

the

second

largest
.

o
A

significant

part

of

the

gold

demand

can

be

attributed

to

culture

and

habits
.

The

economic

explanation

could

be

high

inflation

and

resultant

low

real

interest

rates
.

o
As

inflation

gradually

slopes

down

and

gold

remains

expensive

in

local

currency

terms,

the

propensity

to

buy

gold

will

reduce
.

o
Indians

hold

USD

1

trillion

worth

of

Gold

–

wealth

effect
…

o
Brent

oil

has

corrected

from

$
125
/bbl

to

$

108

/bbl
.

A

$
10

fall

in

oil

prices

for

the

full

year

benefits

the

CAD/GDP

by

0
.
5
%



Tracking the Current Account

Data Source:
Citi
, BSLAMC

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Birla Sun Life Asset Management Company Ltd.

States provide the lead

in growth

5.7%

14.2%

8.7%

0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Manipur
Nagaland
Jammu &…
Assam
Jharkhand
Uttar Pradesh
West Bengal
Pondicherry
Punjab
Kerala
Himachal…
Rajasthan
Tripura
Meghalaya
Karnataka
Goa
Madhya…
Andhra…
Gujarat
Orissa
Tamil Nadu
Andaman &…
Haryana
Mizoram
Arunachal…
Chattisgarh
Maharashtra
Chandigarh
Delhi
Uttarakhand
Bihar
Sikkim
Widely different rates of growth of State Domestic Product (%)
Avg

FY07
-
11

All India GDP Growth

Source: Morgan Stanley, Economic Survey 2011
-
12; BSLAMC

State governments wield

considerable power to influence local business activity. These
range from taxes to allocation of resources like land, water, mines, power etc.

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22

Slowdown
–

Cyclical, not Structural

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Inflation in 2010
-
11…led to tightening….

•
2010
-
2011 saw inflation as the stress point, leading the central bank to raise rates

•
The impact has been seen in the past 6 quarters
–

growth has sharply slowed down

•
Inflation likely to creep down. Non
-
food manufactured inflation is under control

23

Source: Morgan Stanley, Citigroup, Bloomberg

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…impacting industrial growth…

24

Source: Bloomberg

•
Growth slowdown is now at alarming levels.
Growth is now a higher priority
compared to inflation control

•
The central bank cut rates in April, higher than expectations (previous slide). The
loosening cycle has thus begun


Quarterly GDP Growth (% YOY)

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25

…investments…

Projects announcements have seen a sharp fall

% Share in
capex

from projects approved
various years back

Data points on new project announcements has been weak


Private Investments has seen a sharp deceleration, which had

been the driving force for
growth during 2003
–

08 period

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26

….and consumption

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27

The

global economy didn’t help, either

49.0
49.2
45
47
49
51
53
55
57
Aug
-
10
Sep
-
10
Oct
-
10
Nov
-
10
Dec
-
10
Jan
-
11
Feb
-
11
Mar
-
11
Apr
-
11
May
-
11
Jun
-
11
Jul
-
11
Aug
-
11
Sep
-
11
Oct
-
11
Nov
-
11
Dec
-
11
Jan
-
12
Feb
-
12
Mar
-
12
Apr
-
12
May
-
12
Jun
-
12
Jul
-
12
Aug
-
12
China PMI
45.1
40
42
44
46
48
50
52
54
56
58
60
Jan
-
11
Feb
-
11
Mar
-
11
Apr
-
11
May
-
11
Jun
-
11
Jul
-
11
Aug
-
11
Sep
-
11
Oct
-
11
Nov
-
11
Dec
-
11
Jan
-
12
Feb
-
12
Mar
-
12
Apr
-
12
May
-
12
Jun
-
12
Jul
-
12
Aug
-
12
Eurozone Manuf acturing PMI
1.4
4.0
2.3
2.2
2.6
2.4
0.1
2.5
1.3
4.1
2.0
1.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Sep
-
09
Dec
-
09
Mar
-
10
Jun
-
10
Sep
-
10
Dec
-
10
Mar
-
11
Jun
-
11
Sep
-
11
Dec
-
11
Mar
-
12
Jun
-
12
US Quarterly GDP Growth, % Annualized
Higher integration with the global
economy also leads to vulnerability to the
global cycle


Global slowdown also responsible for
export deceleration for India



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28

We believe that it

is cyclical, not structural

India thus has been impacted by


•
Its fight against inflation

•
Poor investment and supply side response

•
Global slowdown


We believe that inflation will peak shortly, the interest cycle has turned and the
Government is tackling the investment slowdown seriously


For India, the slowdown is thus cyclical, not structural


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Birla Sun Life Asset Management Company Ltd.

29

•
The

Indian

markets

have

suffered

an

overhang

of

negative

sentiment

over

the

past

12

months

as

there

has

been

a)

a

perceived

‘policy
-
paralysis’

and

b)

a

cyclical

slowdown
.



•
2012

started

with

the

Government

taking

steps

to

actively

sort

out

urgent

issues,

especially

in

the

power

sector

–

the

markets

bounced

sharply

in

December

2011

till

February

2012
.

However

the

ruling

party

fared

badly

in

key

state

elections

and

economic

issues

took

a

back

seat

in

March
-
April
.



•
Let

us

look

at

the

progress

on

key

concerns



The Wall of Worry

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30

The Wall of Worry

Concern

Progress

Telecom

licences

Supreme

court has cancelled the controversial
licences
. Transparent
bidding later in the year

Retrospective

tax changes

The Government has indicated that this provision will be used only in
very select instances and not as a general rule.

Introduction of General Anti
-
Avoidance
Rules (GAAR) in February

Government
-
appointed Shome committee has recommended a
significant pruning of the scope of GAAR, approval by an
independent Advisory Panel before it is invoked, a three
-
year deferral
of its implementation and exemption

for mutual funds and other
pooling vehicles in low
-
tax countries like Mauritius and Singapore

Threat of a sovereign downgrade by
international rating agencies

This is due to fiscal

deficit. The hike in petrol, diesel prices and
reduction of LPG subsidy are steps to address this. More reduction
will happen because of sale of Government stake in public sector
companies and sale of telecom
licences

Power

sector

Prime

Minister (PM) personally involved in expediting clearances for
stalled new projects

PM’s office also coordinating efforts to solve fuel supply issue from
Coal India. Price pooling mechanism recommended

Slowdown in investments

Projects worth

USD 50 billion being processed for fast
-
track
approvals. Proposed Investment Commission will be another boos to
speed up approvals

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

31

In

the

past

week,

the

Government

has

announced

a

slew

of

growth
-
oriented

reforms
:

•
Reduced

fuel

subsidy

by

increasing

price

of

diesel

and

limiting

supplies

of

subsidised

cooking

fuel

•
Foreign

Direct

Investment

(FDI)

in

multi
-
brand

retail

up

to

51
%

and

100
%

for

Single

brand

retail

•
FDI

in

domestic

aviation

allowed

upto

49
%

from

foreign

carriers

•
FDI

in

broadcast

services

up

to

74
%


•
Announced

sale

of

Government

holding

in

Public

Sector

companies

of

about

USD

3

billion

•
Committee

on

GAAR

recommended

delay

in

implementation

to

allay

foreign

investor

concern

•
Cut

withholding

tax

on

overseas

borrowing

from

20
%

to

5
%

•
Scheme

to

encourage

small

investors

to

enter

the

stockmarket




The Big

Bang Week

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

32

In

the

pipeline
:

•
Debt

restructuring

package

for

State

Electricity

Boards

•
Increase

in

FDI

limit

in

insurance

sector

•
Resolve

coal

fuel

supply

issues

and

pricing

in

the

power

sector

•
Fast
-
track

approvals

of

infrastructure

and

large

investment

projects

•
Accelerate

work

on

the

dedicated

rail

freight

corridor

•
Re
-
shuffling

ministers

(remove

non
-
performers)


The

steps

were

taken

in

the

face

of

extreme

opposition

from

allied

parties

as

well

as

the

opposition

parties
.

In

fact,

a

key

ally

has

withdrawn

support

to

the

ruling

alliance

on

this

issue,

but

the

Government

refused

to

back

down
.

This

shows

how

serious

the

Prime

Minister

is

about

the

issue
.







The Big

Bang Week

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

33

Market Valuations and Outlook

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

34

o
Slowdown in the investment cycle and perceived policy paralysis has dragged down growth
expectations

o
The external account and internal debt situation, while important, are not the key constraints.

o
What is required is a improvement in investment sentiment to a) attract foreign portfolio & direct
investments b) revive domestic business capital expenditure

o
Government getting its act together to take remedial measures and fast to restore investor
confidence and kick start economic growth

Source: Bloomberg, Morgan Stanley

Consensus expectations are low

8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
Feb-10
Mar-10
May-10
Jun-10
Aug-10
Oct-10
Nov-10
Jan-11
Mar-11
Apr-11
Jun-11
Jul-11
Sep-11
Nov-11
Dec-11
Feb-12
Mar-12
May-12
Jul-12
F2012E EPS
-

1189

F2013E EPS
-

1340

F2014E EPS
-

1512

4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
F2009

F2010

F2011

F2012

%

F2013

MS GDP forecasts

F12e 5.8%

F13e 6.6%

India GDP Growth Consensus Forecasts

BSE Sensex consensus EPS growth trend over past 12M

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

35

Low expectations are reflected in cheap valuations
…

Valuations

below Long term averages and
at levels last seen in 2005
-
06

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

331%

397%

203%

34%

0%

215%

137%

69%

11%

10%

63%

41%

21%

14%

-
18%

-50%
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
Below 10
10 - 12.5
12.5 - 15
15 - 17.5
Above 17.5
Sensex 1 Yr Fwd P/E (x)

5 yr Avg return
3 Yr Avg Return
1 Yr Avg Return
Markets have always given excellent 3&5 year returns when invested at PE levels below 12.5

Market behavior & valuations since 2001
–

time for
a long view?

Returns shown above are in absolute terms for all periods

Source:
Motilal

Oswal
; BSLAMC

36

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

Economic
Condition

5 yr EPS
Growth*


PE Ratio**

Sensex Value

Expected
Return***

Bear Case

10
%


(5% GDP + 5% Inflation)

13.41

27,320

8.3%

Normal

13
%


(6% GDP + 7% inflation)

14.90

35,674

14.2%

Bull Case

15%


(8% GDP + 7% Inflation)

16.39

43,598

18.9%

Potential Sensex Return Scenarios

* Over 5 years EPS growth assumed to equal nominal GDP growth

**Long Term
Avg

PE of 14.9; Bear Case at 10% lower, Bull case at 10% higher

*** Includes dividend yield of 1.5%

Source: BSLAMC

37

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

2001

2011

Key Factor

Average Inflation (WPI)

7.1%

9.6%

High inflation

Average Interest Rates (1 yr Gov
Sec Yield)

7.95

8.09

High cost of debt

Combined Fiscal Balance (FY02)

-
9.5%

-
8.3%

Limited

room for pump
priming

INR change (2 Year)

-
10.8%

-
14.8%

Supporting external

competitiveness

Market environment

reminiscent of the midpoint of
2001
–

2003 scenario

Source: Bloomberg; BSLAMC

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

2500
3000
3500
4000
4500
5000
5500
6000
12500
13500
14500
15500
16500
17500
18500
19500
20500
21500
1
5
9
13
17
21
25
29
33
37
41
45
49
53
57
61
65
69
73
77
81
85
89
93
97
101
105
109
113
117
121
125
129
133
137
141
145
149
153
2011-
2001-2003
Likely Sensex Path?

Sensex

beginning 1
st

Jan, 2011 (RHS)

Sensex

From 1
st

Jan, 2001 to
Dec 2003 (LHS)

2001/ 2011

2002/ 2012

2003/ 2013

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

40

•
Hard decisions are usually taken in tough times. Market, growth numbers and
the currency move have driven home the slowdown message and rung the
alarm bells

•
Valuations are attractive, growth expectations are low.

•
We have seen over the past few years that India has repeatedly elected State
Governments who have delivered growth and prosperity. Politicians would not
be oblivious to this fact

•
Government finances still offer leeway to attract flows, with the right approach.

•
We believe that a lot of the above concerns are discounted in the valuations
and small changes in expectations and improvement in the reality will be a
good
trigger

for the market

•
The developments of the past week show a strong resolve to get back
investor confidence and economic growth


Summary

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

41

•
Derailment of the
reform process
because of political compulsions can reduce
investor confidence.

•
Rating agencies are carefully looking at India’s seriousness in reducing the
fiscal deficit
. While the recent steps will address this to some extent, more
needs to be done

•
India’s current account deficit makes it vulnerable to global capital flows. In a
risk
-
off environment, India tends to be impacted negatively

•
The global economy continues to slowdown. Over the years, India has become
more integrated with the global system. The domestic investment cycle needs
to
acclerate

faster to counter the global sluggishness.

•
India imports 80% of its oil requirements. Gold is another big import. Any rise in
prices of these as well as other global food and non
-
food commodity gives rise
to inflation




Key risks to Indian markets

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

42

Portfolio Positioning

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

43

Portfolio Positioning

o
Investment

Philosophy

–

Growth

At

Reasonable

Price

o
Investment

Approach

–

Combination

of

Top

Down

and

Bottom

Up

o
Active

Portfolio

Management

o
Positioned

for

domestic

recovery

–

overweight

Consumer

Discretionary

and

Industrials

o
Overweight

Information

Technology

–

stable

demand

environment

and

attractive

valuations

o
Overweight

Pharmaceuticals

–

steady

performers

o
Financials

–

positioned

in

private

sector

banks

and

underweight

on

public

sector

banks

(concerns

on

asset

quality)
.

Look

to

increase

exposure

as

concerns

reduce

o
Neutral

on

materials

–

more

focus

on

domestic

demand

companies

o
Underweight

Consumer

Staples

–

expensive

valuations

o
Underweight

Energy,

Utilities

and

Telecom

Services

Copyright: Birla Sun Life Asset Management Company Ltd. 2008

Birla Sun Life Asset Management Company Ltd.

44

Thank You