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
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3
India:
The Past,
The Future
Copyright: Birla Sun Life Asset Management Company Ltd. 2008
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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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Birla Sun Life Asset Management Company Ltd.
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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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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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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Birla Sun Life Asset Management Company Ltd.
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
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