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India – Everything to play for

April 2008



2

Agenda

Market : What Happened ?

Global Outlook

India Growth Story ?

Market Outlook



3

Market : What Happened ?



4

What Happened ?

Sept 2007FED Cuts Rate

16000 levels

Feb 2007

Sub Prime CrisisErupted

14000 levels

Begin Jan 2008

FII A llocation Hope

21000 levels



5

What Happened ?

Mid Jan 2008

Retail Margin Selling16500 levels

Begin Jan 2008

FII Selling

19000 levelsEnd Jan 2008

Recovery18000 levels

Feb 2008

Budget Blues

16000 levels

March 2008

Bear Stearns, Inflation

15500 levels



6

• Farm Loan Write-Off • Funded out of Budget

• Bear Stearns Bail-Out• Fed is the Guarantor

•Rising Inflation• They are Revision of Past Data, Not the

Reflection of Current Trend

• Broken Sentiment• Logic and Rationality

What Now ?



7

Global Outlook



8

Huge Losses All Over

Source : Bloomberg; Internal Estimates



9

Global Outlook

Sub prime is an issue Loss Estimate USD 400-600 Billion

Provision USD 231 Billion

Fresh Capital Raised USD 100-150 Billion

For Every $ 1 Written Off, B/ S Needs tobe cut Down by $ 12.5

Credit Crunch Interest Rate Cuts Liquidity Provision

Source : Internal Estimates



10

Is Sub prime a Concern ?

Yes and No

Yes - for global flows determine the shortterm level of market

No - for India’s Exports To GDP ratio at

15% is the lowest in the Peer Group

India’s Exports - Less than 10% of itsexports to USA

India w ill be a beneficiary of US recessionas the Cos w ill look to cut costs




11

G 7 to E 7

Source : Enam



12

Savings w ill chase profitable investment

options.

The World has “Global Savings Glut”.

Growth is driven by Emerging Markets.

Money like water w ill find its own level.

G 7 to E 7



13

Go for the Oil Money

India has cultural relationship w ith Gulf

Source : Enam



14

India Growth Story ?



15

Growth is Slow ing Down



16

Slow ing Growth



17

Slow ing Growth ???

We expect growth at 7-8 % for FY O9



18

Money is scarce and Ratesare rising.

How w ill you fund growth ?



19

Globally Rising Rates



20

We Save Enough



21

We have enough FX

I t is also 4th Largest in the World



22

Liquidity Surplus

We have cash to fund our growth



23

India has very high deficit



24

High Deficit



25

Budget 2009

6000000Farm loan

1690008580071431Total

2500000Pay Commission

49000616402884Oil

20000796030986Fertilizer

150001620032667Food

ESTIMATEFOR FY 09

FY 08 BondIssue Size

2008/ 09

BE

Rs in Crore

Off Budget items are 3.5 % of GDP

Source : Bud et FY 2009 Internal Estimates



26

Budget 2009

8.5 %432047.4 %9553Dividend

12.7 %644601.7 %2128Service

27.2 %13787448.3 %61902Excise

23.5 %11893037.7 %48420Customs

27.3 %13861420.0 %25654Income tax

44.6 %22836123. 9 %30692Corporation

tax

%SHARE

2008/

2009 BE

%SHARE

1999/ 2000ACTUALS

Rs in crore

Service and Corporate Tax Grow thare saviour




27

Yes this is a serious issue.

Our tax to GDP ratio at 12 % islowest in the peer group.

I f people w ill pay tax, deficit w illcome down.



28 Source : Enam

Why people pay tax?



29

Inflation is Rising



30

Inflation is supply side problem.

We ( and the world ) don’t have enough foodgrains, natural resources etc.

Inflation is also a function of falling dollar.

Inflation will remain a concern for some timeto come.

Equity is the hedge against inflation

Analysing the Inflation factor



31

Interest rates are rising



32

Non Food Credit

Rs. 22,29,028 cr ( as on March 14,2008 )

Expected Corporate Tax in FY 09

Rs. 226,361 cr

Corporate Profit in FY 09

Rs 754,537 cr (Assuming 30 % tax rate)

Impact of 2 % increase in interest rates Rs. 44,580 cr

Net of tax impact

Rs. 31,206 cr

Interest rate hike impact Rs. 31,206 cr on Rs. 754,537 cr

Maths Reveals… .




33

Treasury losses are very high



34

Maths Reveals… .


Treasury loss estimated at USD 5 bln

Assume it to be USD 10 billion over 3 years

Corporate tax in FY 09 Rs. 226,361 cr

Corporate Profit in FY 09

Rs. 754,537 cr (Assuming 30 % tax rate)

Impact of Annual Treasury Loss

Rs. 13,333 cr

Net of tax impact

Rs 9,333 cr Impact of Treasury Losses

Rs 9,333 cr on rs 754,537 cr



35

US and the World is inBig Trouble



36

US markets are not down as much as India.

There is more problem in US but less panic.

There is not much of a problem in India but

more panic.

Genetic problem of Indians ?

Analysing the US factor



37

India Growth w ill slow down



38

Twin engines of growth

Consumption Infrastructure



39

42

12

17

7

5

89

FOOD HOUSI NG T RANSP OR T HEALT H EDUCAT ION P ER SONAL

P R O D U C T S

O T H E R S

Consumption Pattern

• Support from the budget• Tax cuts and farm write offs




40

125 %500220Spending ( $ Bln )125 %13301470Aluminium (KTPA)

58 %250430Coal (MT)

89 %4045Steel (MT)

46 %80173Cement (MT)

180 %5429Gas ( MTOE)

60 %88147Refining (MMTPA)

106 %485456Ports (MT)51 %70136Electricity (GW)

GrowthAdditionover 3-5

years

CurrentInstalledCapacity

Area

Source : IIFL

What India build in last 60 years is nowbeing planned in next 3-5 years

Infrastructure Spending



41

India Growth Story

Fundamentals are in place.

There are concerns for the short tomedium term.

The long term story is still intactprovided the event based risks doesnot create permanent eclipse



42

You know who said this?

“ When we were young kids growing up inAmerica, we were told to eat our vegetables at

dinner and not leave them. Mothers said, think ofthe starving children in India and finish thedinner.”

And now I tell my children: 'Finish yourhomework. Think of the children in India whowould make you starve, if you don't?'

THE WORLD IS FLAT- BY THOMAS FRIEDMAN



43

Elephant’swalk slow… ..

BUT

Elephant’sdon’tWalk

backwards



44

Market Outlook



45

Market Outlook

Indian fundamentals are inplace

Valuation is fair

Rs 1000 EPS of SENSEX for FY 09

Embedded value of 1500 points

Markets at fair value of 14 timeFY 09.

Lot of the bad news is alreadyin the prices




46

Indian market w ill be volatile forevent risks

Market Outlook



47

Risks

Event risks

RBI Policy review (CRR hike byRBI of 50bps already priced in)

Monsoon

ElectionGlobal uncertainty

Treasury losses

Li idit



48

Liquidity

Market w ill be tight on liquidity

RetailSpeculator

Operator

Arbitrager

M k t O tl k



49

Market Outlook

S Diff tl



50

See Differently

Whe e is the Bottom



51

Where is the Bottom

Lowest Valuations

Since 9/ 11

GDP grow th > 4.6 %

Earnings growth > 6 %

Interest < 9.90 %

FII flows > $ 0.5billion

Panic and Fear

10 times 1 year fwdearning of Rs. 260 inFY 02

What Now?

GDP Grow th > 7 %

Earnings Grow th > 12 %

Interest Rate < 7.90 %

FII flow : ????

Panic and Fear ? Sensex EPS Rs 1000 for

FY 09

Your guess on Bottom w ill be as good as ours


Valuations are Fair



52

Valuations are Fair

We are Cheap



53

We are Cheap

Source : DB Global Markets Research, Haver, MSCI, Factset

Catch the Rebounce



54

Catch the Rebounce

Security Market crash of 92


WHERE CAN SENSEX GO ?



55

39191326592721622680189001575020%

35432300272544621565182751548818%

30359263992295619961173581509415%

25906231312065218440164641470012%

15P/E RATIO

26132177181415121260105020%

23622002169614381218103318%

20241760153013311157100615%

1727154213771229109898012%

GROWTH

875BSE SENSEX

EPS

FY2014

FY2013

FY2012

FY2011

FY2010

FY2009

FY2008YEAR

WHERE CAN SENSEX GO ?

INTERNAL CALCULATIONS

Recommendations



56

•Back to Basics•Long term•

Asset allocation•Systematic investment

•

Buy large cap funds/ stocks•Below 16000 sensex overweightequity

•Be ready for volatility

Recommendations



58

THANK YOU

india everthing to play for

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