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ADVICE for the WISE


   Newsletter – MARCH 2012
Contents



Index                        Page No.

Economic Update                   4

Equity Outlook                    8

Debt Outlook                     12
Forex                             14

Commodities                       15

Real Estate                      16




                                        2
From the Desk of the CIO…

Dear Investor,
This calendar year, along with 4 years before it, has brought home an                                 For example, a relatively harmless and in fact positive statement by the
important structural feature of the modern global financial system –                                  US Fed Chairman on the 29th February this year, regarding the cautiously
volatility. Of course volatility of asset prices is probably as old as any                            optimistic state of the economic growth, caused widespread selling of
market for financial securities. However, what has changed in recent                                  commodities and emerging market equities. The underlying reason was
times is the unprecedented growth in liquid assets and along with it the                              his connected statement regarding there being no immediate possibility
proportion of wealth held in easily tradable instruments. This unusually                              of another round of quantitative easing (QE) in US. The logic here is that
high and ever-growing liquidity of assets has translated into higher                                  with no QE, there will not be another bout of easy liquidity pushing asset
turnover – as investors flock to some assets or flee some others from                                 prices up. Hence many investors looked to exit the riskier assets which
time to time. The tremendous ease of transactions means that the                                      had their prices rise sharply after an exercise similar to quantitative
opinion or outlook can readily lead to buy-sell decisions. Why does this                              easing in December last year – this time in EU.
matter? It does because this fundamentally entrenched feature of the
modern financial system implies frequent and long-lasting deviation of                                The equities rally in January and most of February this year along with
asset prices from their fundamental value.                                                            the emergence of caution towards the end of February, as also the sharp
                                                                                                      fall in second half of 2011 are outcomes of the same structural volatility
This deviation is confusing in its mild form but highly corrosive in its                              of markets around the world. If 2003 to 2007 was the period of the great
extreme form. It has the potential to inflict large real and opportunity                              moderation, 2008 to 2012 definitely counts as the period of great
costs on investors – especially the non-institutional ones. It also leads the                         turbulence. It is very likely that the turbulence will continue through
investors to miss the woods for the trees since the large movements in                                much of the rest of the decade
asset prices make most investors overestimate the actual volatility of the
                                                                       Learning to live with volatility is a bit like getting used to making a
prices – often causing needless panic. The practical implication of this is
                                                                       conversation in a very noisy café. It is stressful to start with but one often
that investors often find themselves selling at the worst times, buying at
highs, paying too much for very little outperformance over passive     gets accustomed soon enough – adjusting the pitch and intensity of one’s
indexing and so on.                                                    voice almost subconsciously. In a similar vein, building wealth through
                                                                       the turbulence of this period, one would do well to get into a habit of
If this is the face of the brave new world, the investors need to filtering out noise, focusing on the task at hand and having the patience
recalibrate their expectations, thumb-rules and investment heuristics. of almost an ascetic!                                                                                                            3
“Advisory services are provided through Karvy Stock Broking Ltd. (PMS) having SEBI Registration No: INP000001512. Investments are subject to market risks. Please read the disclaimer on slide no.19”
Economic Update - Snapshot of
                                         Key Markets
                                                                                    120      Sensex   Nifty        S&P 500   Nikkei 225

                                        As on 29th   Change over   Change over      115
                                                                                    110

                                        Feb 2012     last month    last year        105
                                                                                    100
                                                                                    95

                    BSE Sensex            17753         3.3%          (0.4%)        90
                                                                                    85
                                                                                    80

  Equity            S&P Nifty              5385         3.6%           1.0%         75



  Markets           S&P 500                1366         4.1%           2.9%
                                                                                    9.30
                    Nikkei 225             9723         10.5%         (8.5%)        8.80              10 yr Gsec
                                                                                    8.30
                                                                                    7.80
                                                                                    7.30
                                                                                    6.80
                    10-yr G-Sec Yield     8.20%        (8 bps)        20 bps
Debt Markets        Call Markets          9.05%        (5 bps)        220 bps
                                                                                 31000
                                                                                                         Gold
                    Fixed Deposit*        9.25%         0 bps         100 bps    29000
                                                                                 27000
                                                                                 25000
                                                                                 23000
                                                                                 21000
                                                                                 19000

                    RICI Index             3915         4.4%          (6.2%)     17000
                                                                                 15000
 Commodity
                    Gold (Rs./10gm)       28599          1.7           37.5
  Markets
                    Crude Oil ($/bbl)     124.02        12.5%          10.5%         56.00
                                                                                     54.00                          `/$
                                                                                     52.00
                                                                                     50.00
                                                                                     48.00
                                                                                     46.00
                                                                                     44.00
    Forex           Rupee/Dollar           48.94        1.52%         (7.68%)        42.00
                                                                                     40.00


  Markets           Yen/Dollar             80.47       (4.8%)          1.6%
* Indicates SBI one-year FD                                                                                                               4
Economy Update - Global

            • The Consumer Price Index for all Urban Consumers increased 0.2% in January on a seasonally adjusted
              basis. Over the last 12 months, the all items index increased 2.9% before seasonal adjustment.

   US       • Total U.S. nonfarm payroll employment rose by 243,000 in January 2012. The unemployment rate
              decreased by 0.2% to 8.3% from an 8.5% in December 2011. Job growth was widespread in the private
              sector, with large employment gains in professional and business services, leisure and hospitality, and
              manufacturing.


            • The European Central Bank released the second round of its 3-year LTRO operation on 29th February 2012,
              which amounted to €529.53 billion to support the banking sector and help stem the crisis. This allotment
 Europe       was higher than the amount of €489 billion the ECB had allotted in month of December 2011.
            • Consumer prices in the 17 countries that use the euro rose by 2.6%(y-o-y) in January 2012 down from
              2.7% in month of December 2011.


            • The seasonally adjusted Markit /JMMA Purchasing Managers’ Index (PMI) was at 50.5 in February,
              slightly down from 50.7 in January, signalling a continued, albeit marginal, improvement in
              manufacturing sector business conditions.
  Japan
            • Japan's unemployment rate inched up to 4.6% in January from a revised 4.5% in the previous month
              while household spending fell by 2.3% year-on-year. Japan's core consumer prices fell 0.1% in January
              from a year earlier, the fourth consecutive month of decline.


            • India’s activity in the manufacturing sector continued to expand in February, although at a slightly slower
              pace. The seasonally adjusted HSBC Purchasing Managers’ Index (PMI), registered 56.6 in February,
 Emerging     slightly down from 57.5 in January.
economies   • China’s HSBC Purchasing Managers’ Index – a composite indicator designed to give a single-figure
              snapshot of operating conditions in the manufacturing economy – registered 49.6 in February, up from
              48.8 in the preceding month.
                                                                                                                            5
Economy Outlook - Domestic

 10.0%                            IIP                              • The double-digit expansion of consumer non-durables for
 8.0%                                                                the second month in a row (14.4% in November 2011 and
 6.0%
                                                                     13.4% in December 2011) suggests some revival in consumer
                                                                     spending on non-durable items, following a moderation in
 4.0%
                                                                     food inflation.
 2.0%
 0.0%
         Dec Jan Feb Mar Apr May Jun   Jul   Aug Sep Oct Nov Dec
 -2.0%
         10   11 11 11   11 11    11   11    11  11 11   11 11
                                                                   • Gross domestic product in India - Asia's third-largest
 -4.0%                                                               economy - grew at an annual 6.1% in the third quarter. It is a
 -6.0%                                                               significant slowdown from 6.9% in the previous quarter and
                                                                     marks the fourth straight quarter of growth below 8%.

• India's industrial output recorded a slow growth of 1.8%
  in December from 5.9% growth in November with a                  • The sluggish growth can be attributed to poor performance
  weaker performance across all the use-based categories             of the manufacturing, mining and farm sectors. The
  except consumer non-durables. The November growth                  slowdown in the manufacturing sector, coupled with decline
  had also benefitted from factors such as a benign base             in mining and quarrying, is likely to put pressure on the
  effect and spurt in production levels following fewer              Reserve Bank of India to cut interest rate at its mid-quarter
  working days in October 2011 related to the festive                monetary policy review on March 15, 2012.
  season, amidst others.
• In particular, capital goods underwent a contraction for                                     GDP growth
                                                                            8.6
  the fourth consecutive month, with a steep 16.5% de-              9.0
                                                                                     8.1
                                                                                              8.4      8.3
                                                                                                                7.8      7.7
  growth in December 2011, whereas intermediate goods               8.0
                                                                                                                                  6.9
  displayed a contraction of 2.8% in the same month.                7.0
                                                                                                                                           6.1
                                                                    6.0
• Basic goods and consumer durables expanded by a
  modest 4.0% and 5.3%, respectively, in December 2011,             5.0
  suggesting that demand for final goods remains moderate.          4.0
                                                                          FY10(Q4) FY11(Q1) FY11(Q2) FY11(Q3) FY11(Q4) FY12(Q1) FY12(Q2) FY12(Q3)


                                                                                                                                                    6
Economic Outlook - Domestic
          Growth in credit & deposits of SCBs                        The Wholesale Price Index (WPI) based inflation, which
                                                                      has remained in double digits for almost two years,
24.0%                     Bank Credit      Aggregate Deposits
                                                                      declined further to 6.55% in January 2012 from 7.47% in
22.0%
                                                                      the previous month. The moderation in January 2012
20.0%                                                                 was led by a fall in food inflation with prices in the
18.0%                                                                 manufactured and primary segment falling due to good
16.0%                                                                 harvest.
14.0%
12.0%                                                                Wholesale food prices for the month of January grew at
10.0%                                                                 0.52% compared to 0.74% in December. Prices of
                                                                      manufactured goods rose by 6.49%, moderating from
                                                                      7.41% rise recorded in December. Notably, the WPI for
                                                                      the month of November has been revised upwards to
                                                                      9.46% from 9.11%.
 As on January 27, bank credit grew by 50 bps i.e. 6.5% on a y-     The Consumer Price Index, which was introduced keeping
  o-y basis. The aggregate deposits grew by 15.7% on a y-o-y          in mind that demand-side pricing would be a better
  basis witnessing a decline of 150 bps as compared to last           indicator of inflation stood at 7.65% for January. The new
  month.                                                              CPI data was launched early last year and will gradually
                                                                      displace WPI data as the primary indicator of inflationary
                                                                      trends in India
 We believe that if the February inflation numbers come around
                                                                   10.0%
  6.5%, RBI might start repo rate cuts very soon. We expect a       9.5%
  cumulative repo rate cut of 100 bps for this calendar year.       9.0%
                                                                    8.5%
                                                                    8.0%
                                                                    7.5%                     WPI
                                                                    7.0%
                                                                    6.5%
                                                                    6.0%


* End of period figures                                                                                                            7
Equity Outlook

With monetary policy remaining extremely easy in developed part of the world and developing markets like China & India starting the
monetary easing cycle, we expect 2012 to be a good year for equities with India emerging as a big outperformer.


European debt markets have calmed down due to massive liquidity injection (LTRO 1) done by European central bank. Bond yields of
PIIGS countries have been coming down. This supply of liquidity has resulted in big rally in risk assets across the world. Greece has
been able to arrive at a deal with private bond holders and European authorities resulting in a fresh bailout package. With new LTRO
facility delivering 529 billion Euros to European banks, we expect the risk-on trade to continue.

                                  Performance of Indices since the Beginning of LTRO 1

                 USD INR, -6.6%

                                                                                   CRB Index, 7.2%
                                                                                                       MSCI Asia Pacific,
                                                                                                            13.0%
                                      Peformance (%)                                                 Nifty, 12.5%

                                                                                             FTSE, 10.1%

                                                                                   DowJones, 7.2%

                                      DXY, -1.9%



                -10.0%              -5.0%            0.0%              5.0%              10.0%             15.0%
                                                                                                                                        8
Equity Outlook

RBI has started the reversal of the tight monetary policy with a 50 bps cut in cash reserve ratio (CRR). We would expect a further CRR
cut in the March policy. We believe that if February inflation number comes around 6.5%, RBI might start repo rate cuts very soon.
We expect a cumulative repo rate cut of 100 bps for this calendar year. The biggest beneficiaries of the reversal in policy would be
interest rate sensitive sectors like banks, autos and capital goods.


Union budget would be tabled on 16th March. We expect the finance minister to move towards Fiscal consolidation by capping fiscal
deficit. Expenditure on various social sector programme and subsidies might be raised by a limited amount. Revenue increasing
measures like Increase in excise duty and widening of service tax net are expected. Government might also focus on accelerating
infrastructure spending particularly for power segment. The government might also address issues like fuel linkage and
environmental clearance for coal mines. Also, we expect removal of import duty for coal. These measures would be positive for
power and infrastructure sectors.


We believe that going forward GDP growth will bounce back to 7-7.5% with monetary easing resulting in a boost to infrastructure
activity. We expect that inflation would come down this year and could average around 7% leading to nominal growth of 14-15%.
That would lead to corporate earnings growth of 15%. We expect Sensex earnings of INR 1300 for FY13 and around 1500 for FY14.
We arrive at a year end Sensex target of 22500 based on 15 times FY14 earnings which would give an upside of 30% from current
levels.

                                                                                                                                         9
Sector View

 Sector       Stance                                                      Remarks

                          The USD 1 trillion Infra opportunity is hard to ignore. However, The significant slowdown in order inflow
                          activity combined with high interest rates has hurt the sector. Now since the interest rate cycle has
   E&C       Overweight
                          started to reverse, we have turned more constructive on this space. Expected budget push will also be a
                          trigger.

                          Financial sector is undeniably the lubricant for economic growth. Whether the growth comes from
                          consumption or investments, credit growth is inevitable. Being a well regulated sector, BFSI in India has
   BFSI      Overweight
                          good asset quality and capital adequacy ratios. The reversal of the interest rate cycle will assist in
                          managing asset quality better and would lead to increase in credit growth

                          We believe in the large sized opportunity presented by Pharma sector in India. India’s strength in
                          generics is difficult to replicate due to quality and quantity of available skilled manpower. With the
Healthcare    Neutral     developed world keen to cut healthcare costs, and a vast pipeline of drugs going off-patent, Indian
                          Pharma players are at the cusp of rapid growth. We would bet on the opportunity in Generics and
                          CRAMS space

                          We prefer “discretionary consumption” beneficiaries such as Cigarettes and branded garments, as the
  FMCG        Neutral
                          growth in this segment will be disproportionately higher vis-à-vis the increase in disposable incomes.


                          The regulatory hurdles, competitive pressures and leverage prevent any return to high profitability levels
 Telecom      Neutral     in the short to medium term. However, incumbents have started to increase tariffs slowly and we
                          believe that consolidation will happen sooner than expected.
                                                                                                                                       10
Sector View

   Sector           Stance                                                    Remarks

                                While US and European customers of Indian IT companies are in good health, Order inflows might slow
    IT/ITES         Neutral     down in near term. However, in the next few quarters big rupee depreciation will provide cushion to IT
                                companies earnings .

                                Demand outlook remains robust with strong earnings growth. Raw material prices have started coming
Automobiles         Neutral     down which would boost margins. We are more bullish on two-wheeler and agricultural vehicles
                                segment due to lesser competition and higher pricing power.

                                Commodity prices have corrected significantly over the last few months due to concerns about growth
   Metals           Neutral     in developed parts of the world. We believe the commodity prices will bounce back once growth
                                recovers and hence would be positive on industrial metals space.


                                Cement demand will certainly grow over the next three years. With pricing power returning, e are
   Cement           Neutral
                                becoming constructive on this space.


                                We like the regulated return characteristics of this space. This space provides steady growth in
Power Utilities     Neutral
                                earnings and decent return on capital.


                                We would stay away from oil PSUs, due to issues of cross subsidization distorting the underlying
   Energy         Underweight
                                economics of oil exploration and refinery businesses.

                                                                                                                                         11
Debt Outlook

  11.0                                                         9.30

  10.5                Yield curve                                             10-yr G-sec yield
  10.0                                                         8.80

   9.5
   9.0                                                         8.30
(%)




   8.5
   8.0                                                         7.80

   7.5
                                                               7.30
   7.0
   6.5
                                                               6.80
   6.0
          5.3
          0.0
          0.9
          1.8
          2.7
          3.5
          4.4

          6.2
          7.1
          8.0
          8.8
          9.7
         10.6
         11.5
         12.4
         13.3
         14.1
         15.0
         15.9
         16.8
         17.7
         18.5
         19.4
      • The 10 year benchmark G–Sec yield decreased by 8 bps in February to close at 8.20%.


      • The 10-year G-sec yields were rather volatile and started dipping in the month end due to the GDP
        figures which came in at 6.1%, below market expectations. The LTRO announcement though helped
        the yields to jump back and end at 8.24% on 1st March 2012.


      • The AAA rated corporate bonds are giving an yield of around 10.75%.


                                                                                                            12
Debt Strategy

   Category    Outlook                                       Details

                           With the pause by RBI and the expected trend reversal of the
                           interest rates, we would not recommend investment in Shorter
Short Tenure               term debt funds unless money necessarily needs to be parked for
   Debt                    the shorter term by the investor. However, the ST funds still have
                           high YTMs (9.5% – 10%) providing interesting investment
                           opportunities to clients for the shorter term.



                           Some AA and select A rated securities are very attractive at the
   Credit                  current yields. A similar trend can be seen in the Fixed Deposits
                           also. Tight liquidity in the system has also contributed to widening
                           of the spreads making entry at current levels attractive.



                          With the expected trend reversal in the interest rates, we would
                          strongly recommend investment in Longer term papers. These, while
Long Tenure               being available at attractive yields, also provide an opportunity for
                          Capital appreciation due to a decrease in interest rates. Hence, these
   Debt
                          would be suitable for both - investors who may want to stay invested
                          for the medium term (exiting when prices appreciate) and those who
                          would want to lock in high yields for the longer term.
                                                                                                   13
Forex

Rupee movement vis-à-vis other currencies (M-o-M)                           Trade balance and export-import data
                                                                      100                                                                                  0
                                                                                       Export          Import          Trade Balance (mn $)
8.00%                                                                  80                                                                                 -5000
                                                                       60
                                                                                                                                                          -10000
6.00%                                                                  40
                                                                                                                                                          -15000
                                                                       20
4.00%                                                                   0                                                                                 -20000
                                                                      -20                                                                                 -25000
2.00%
                                                                    • India’s exports grew 10.1% to $25.35 billion in January
0.00%
            USD          GBP          EURO          YEN
                                                                      2012, compared to $23.02 billion in the same year-ago
-2.00%                                                                month, while imports were up 20.25% at $40.10 billion
                                                                      translating into a trade deficit of $14.75 billion.
                                                                     140000
• Indian rupee posted a second straight month of gains against                                        Capital Account Balance
  the US Dollar. The rupee appreciated by 1.52% against the           90000
  dollar in month of February.
                                                                      40000
• However, surging crude oil prices and their cascading impact
  on inflation and growth in India, which imports about 80 per       -10000
                                                                              FY 10 (Q3) FY 10 (Q4) FY 11 (Q1) FY 11 (Q2) FY 11 (Q3) FY 11 (Q4) FY 12 (Q1) FY 12 (Q2)
  cent of its oil requirements, is expected to limit the rise in
  the rupee.                                                       • The projected capital account balance for Q2 FY 12 is at Rs.
                                                                     84,400 Cr. while the Q1 figure was revised upwards to
• Rupee depreciated against Euro due to expectation during           Rs.1,02,100 Crores.
  the month that European Central Bank (ECB) will inject           • We expect factors such as higher interest rates to attract
  nearly half a trillion Euros into banks in three-year              more investments to India. Increased limits for investment
  refinancing operation.                                             by FIIs would also help in bringing in more funds though
                                                                     uncertainty in the global markets could prove to be a
                                                                     dampener.
                                                                                                                                                                        14
Commodities

            Having staged a good up move during most of February, gold went            30000
            for a sharp selloff following comments from the Feb Chairman Ben                                                                                  Gold
                                                                                       28000
            Bernanke. The expectation of QE3 that the metal market has been
            pricing did not materialize the way the markets were expecting,            26000
            thereby denting its safer haven status, while ECB announcing LTRO2
Precious    postponed the default events in the Euro zone which triggered profit
                                                                                       24000

            taking amongst the bulls. On the flip side, any such sharp down fall is    22000
 Metals
            currently supported by the physical off take. But, given the festive       20000
            and marriage season behind us, expect weakness in the counter.
                                                                                       18000
            Nevertheless, gold was behaving as we expected and as quoted




                                                                                                                 31/Jan/11
                                                                                                     31/Dec/10




                                                                                                                                                                                                                                                        31/Dec/11
                                                                                                                                         31/Mar/11


                                                                                                                                                                    31/May/11
                                                                                                                             28/Feb/11


                                                                                                                                                       30/Apr/11



                                                                                                                                                                                            31/Jul/11


                                                                                                                                                                                                                    30/Sep/11


                                                                                                                                                                                                                                            30/Nov/11
                                                                                                                                                                                                                                31/Oct/11
                                                                                                                                                                                30/Jun/11


                                                                                                                                                                                                        31/Aug/11
            earlier, we expect softness in during the 1HCY2012. Expect range
            bound markets with a negative bias.


                                                                                      130.0
            As the US and Europe are out of the woods so far, the expectation of                                                                                                        Crude
                                                                                      125.0
            economic revival pushed Crude Oil prices further higher. Iran issue
            continues to be centre of focus, while U.S. officials escalated           120.0
            warnings that the nation may join Israel in attacking Iran to stop the
Oil & Gas                                                                             115.0
            development of nuclear weapons. Despite, Saudi Arabia deploying
                                                                                      110.0
            the most oil rigs in four years as it prepares for possible shortages
            caused by tension with Iran, the recent rumours of Saudi pipeline         105.0
            explosion further pushed prices higher. We continue to maintain our       100.0
            bullish stance on oil and expect oil to trade at an elevated levels
                                                                                       95.0
            with a possibility of spike moving forward.
                                                                                       90.0




                                                                                              31-…
                                                                                                          31-…
                                                                                                                      28-…
                                                                                                                                     31-…
                                                                                                                                                     30-…
                                                                                                                                                                   31-…
                                                                                                                                                                                30-…
                                                                                                                                                                                            31-…
                                                                                                                                                                                                         31-…
                                                                                                                                                                                                                      30-…
                                                                                                                                                                                                                                    31-…
                                                                                                                                                                                                                                                 30-…
                                                                                                                                                                                                                                                               31-…
Real Estate Outlook - I

Asset Classes                                                       Outlook
                In the residential space, low sales volumes have led to a sharp decline in the absorption rate from 21.4% in Q1
                2011 to 11.5% in Q3 2011. However, strong pre-launch sales have kept the developers far from any correction.
                Though sales have gone down to almost 35% as compared to last year, no correction has been witnessed in the
                prices. The over-supplied locations remain stagnant and are expected to remain so for the next two quarters. In
                cities like Pune, NCR, Hyderabad, Chennai and Bangalore entry points in the range of Rs. 3000 – Rs. 4600 per
 Residential
                Sqft are still valued by first time home -buyers. Infrastructure development and the new airports in these cities
                have supported the residential development. On an average, prices in this segment still remain affordable.
                Mumbai stands tall with prices at the peak in an over-supplied market also. Corrections are being reported by
                media, however not being witnessed on ground level. The retail investors (second home buyers) and HNI
                investors are postponing their decision due to expectations of price correction.
                Average q-o-q rental growth in 3Q11 was recorded at 2.5%. Mumbai SBD BKC was among the most expensive
                markets and Bangalore and Chennai among the least expensive in Asia Pacific, on the basis of Net Effective
                Rents. Among the fastest growing office market in the world, India is constructing 100 million Sqft every 7-10
                quarters. Office stock is expected to become 500 million Sqft by 2015. The Net Absorption is expected to grow
                from 30.5 million Sqft in 2010 to 39.1 million Sqft in 2013. Absorption rate has been recorded at 13.3% in
                3Q11. 8.5 million Sqft of office space was absorbed in 3Q11 compared to 10.5 million sq ft in 2Q11.

Commercial/IT   Still in the shadows of over-supply and cautious expansion approach by corporates, this segment has gone
                through a correction. Rates per Sqft have seen almost 30% down-trend and is expected to be stagnant for the
                coming 2-3 quarters. After this correction we believe the segment is bottoming out and is the best time to buy
                for companies looking at long term holding of real estate office space. With signs of recovery in the global
                economy, the Indian office markets are expected to be nearing the end of the downturn. Despite improving
                demand conditions, vacancies are rising in the short term due to massive infusion of office space. Markets of
                Bangalore, Mumbai and NCR-Delhi are leading the property cycle as rentals have started to increase in these
                markets.
                                                                                                                                    16
Real Estate Outlook - II

     Asset Classes                                                                 Outlook
                             The FDI allowance has given lot of impetus to this sector. Since 2009 retail has seen a major transformation in
                             all its business aspects and has been built to suit Indian way of consumerism. Low cost, wide reach, more
                             variety, less innovation, close existence with competition, maximizing bottom line than top-line approach have
                             been making the retailers smarter. In the retail space, unorganized markets are still a preferred choice. Most
                             high-street locations are still expensive. Investors prefer Hi-street locations than malls since they would always
                             have capital appreciation due to dearth of available space.
         Retail
                             Of 9.9 mn sq ft forecasted for absorption in 2011, 7.1 mn sq ft has already been absorbed till 3Q11 and another
                             1.3 mn sq ft is pre-committed. The northern regions of India rate high on propensity to consume followed by
                             the western, eastern and southern regions. Industrial towns are similar to each other in consumer preferences
                             and socio-economic & demographic profiles. Most of them remain equally under-served despite recent mall
                             developments in the last couple of years.
                             The trend of investment in land is still nascent since lack of transparency and unclear national land acquisition
                             policy/rules makes it tough for the organized players/investors to transact. However this seems to be a very
                             interesting time to buy land which is being traded more as a commodity now. It is getting absorbed fast. Land
          Land               sees immense opportunity since it can be used as a tangible asset and is the most credible pledge against
                             business. With the growing commitment of the Government in improving infrastructure (roads, bridges,
                             airports, rail metros), in the last 5 years many far flung areas now have very good connectivity to the CBD
                             locations.




The IC note is proposed to be presented every quarter


                                                                                                                                                  17
Why Karvy Private Wealth?

                                       Open Architecture – Widest array of products
   We are an open-architecture firm at two levels – asset class level and product level :
     • Offering COMPREHENSIVE choice of investing across all asset classes
     • Offering EXTENSIVE choice of multiple products from different product providers under each asset class
                                                       Intensive Research
 We closely track the historical performance across asset classes, sub-asset classes and product providers to identify, evaluate and
 recommend investment products (KPW’s or third-party). We have our own proprietary methodology for evaluating products; for
 product providers, we also note the investment style and risk management philosophy. Our comprehensive analysis determines
 truly exceptional performers to be added to your portfolio

                                                   Honest, unbiased advise
Group-wide, we have no Mutual Fund or Insurance products of our own unlike most of the financial services groups (banks or
broking houses), who are doing wealth management. Neither do we have exclusive tie-up with any single insurance company like
all banks do.
                                               The KPW 3-S Service promise:
 When you become a Client of KPW, besides getting intelligent & practicable Investment Advice, you get the benefit of “The KPW 3-
 S Service Promise” :
         • Smooth and Hassle Free – Attention, Service & Convenience
         • Sharp and proactive – Portfolio monitoring and tracking
         • Smart –Incisive insights on markets and Investment products
                                            Pedigreed Senior Management Team

  A talented team of leaders with global and Indian experience, having a unique blend of backgrounds of wealth management,
  private equity, strategy consulting and building businesses powers Karvy Private Wealth and its operations.
                                                                                                                                       18
Disclaimer
The information and views presented here are prepared by Karvy Private Wealth(a division of Karvy Stock Broking Limited) or other Karvy Group
companies. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the
accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it.

The investments discussed or recommended here may not be suitable for all investors. Investors must make their own investment decisions based on
their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any
information or analysis mentioned here, investors may please note that neither Karvy nor any person connected with any associated companies of
Karvy accepts any liability arising from the use of this information and views mentioned here.

The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above-mentioned companies from time to
time. Every employee of Karvy and its associated companies are required to disclose their individual stock holdings and details of trades, if any, that
they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other
securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further
restricted to place orders only through Karvy Stock Broking Ltd.

The information given in this document on tax are for guidance only, and should not be construed as tax advice. Investors are advised to consult their
respective tax advisers to understand the specific tax incidence applicable to them. We also expect significant changes in the tax laws once the new
Direct Tax Code is in force – this could change the applicability and incidence of tax on investments

Karvy Private Wealth (A division of Karvy Stock Broking Limited) operates from within India and is subject to Indian regulations.
Karvy Stock Broking Ltd. is a SEBI registered stock broker, depository participant having its offices at:
702, Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra (East), off Bandra Kurla Complex, Mumbai 400 051 .
(Registered office Address: Karvy Stock Broking Limited, “KARVY HOUSE”, 46, Avenue 4, Street No.1, Banjara Hills, Hyderabad 500 034)

SEBI registration No’s:”NSE(CM):INB230770138, NSE(F&O): INF230770138, BSE: INB010770130, BSE(F&O): INF010770131,NCDEX(00236,
NSE(CDS):INE230770138, NSDL – SEBI Registration No: IN-DP-NSDL-247-2005, CSDL-SEBI Registration No:IN-DP-CSDL-305-2005, PMS Registration No.:
INP000001512”                                                                                                                                             19
Contact Us

                                  Bangalore               080-26606126
                                  Chennai                 044-45925923
                                  Coimbatore              0422 – 4291018
                                  Delhi                   011-43533941
                                  Gurgaon                 0124-4780228
                                  Hyderabad               040-44507282
                                  Kochi                   0484 – 2322152

                                  Kolkata                 033-40515100
                                  Mumbai                  022-33055000
                                  Pune                    020-30116238

     Email: wealth@karvy.com            SMS: ‘HNI’ to 56767         Website: www.karvywealth.com


Corporate Office : 702, Hallmark Business Plaza, Off Bandra Kurla Complex, Bandra (East), Mumbai – 400 051
                                                                                                             20

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Advice For The Wise - March 2012

  • 1. ADVICE for the WISE Newsletter – MARCH 2012
  • 2. Contents Index Page No. Economic Update 4 Equity Outlook 8 Debt Outlook 12 Forex 14 Commodities 15 Real Estate 16 2
  • 3. From the Desk of the CIO… Dear Investor, This calendar year, along with 4 years before it, has brought home an For example, a relatively harmless and in fact positive statement by the important structural feature of the modern global financial system – US Fed Chairman on the 29th February this year, regarding the cautiously volatility. Of course volatility of asset prices is probably as old as any optimistic state of the economic growth, caused widespread selling of market for financial securities. However, what has changed in recent commodities and emerging market equities. The underlying reason was times is the unprecedented growth in liquid assets and along with it the his connected statement regarding there being no immediate possibility proportion of wealth held in easily tradable instruments. This unusually of another round of quantitative easing (QE) in US. The logic here is that high and ever-growing liquidity of assets has translated into higher with no QE, there will not be another bout of easy liquidity pushing asset turnover – as investors flock to some assets or flee some others from prices up. Hence many investors looked to exit the riskier assets which time to time. The tremendous ease of transactions means that the had their prices rise sharply after an exercise similar to quantitative opinion or outlook can readily lead to buy-sell decisions. Why does this easing in December last year – this time in EU. matter? It does because this fundamentally entrenched feature of the modern financial system implies frequent and long-lasting deviation of The equities rally in January and most of February this year along with asset prices from their fundamental value. the emergence of caution towards the end of February, as also the sharp fall in second half of 2011 are outcomes of the same structural volatility This deviation is confusing in its mild form but highly corrosive in its of markets around the world. If 2003 to 2007 was the period of the great extreme form. It has the potential to inflict large real and opportunity moderation, 2008 to 2012 definitely counts as the period of great costs on investors – especially the non-institutional ones. It also leads the turbulence. It is very likely that the turbulence will continue through investors to miss the woods for the trees since the large movements in much of the rest of the decade asset prices make most investors overestimate the actual volatility of the Learning to live with volatility is a bit like getting used to making a prices – often causing needless panic. The practical implication of this is conversation in a very noisy café. It is stressful to start with but one often that investors often find themselves selling at the worst times, buying at highs, paying too much for very little outperformance over passive gets accustomed soon enough – adjusting the pitch and intensity of one’s indexing and so on. voice almost subconsciously. In a similar vein, building wealth through the turbulence of this period, one would do well to get into a habit of If this is the face of the brave new world, the investors need to filtering out noise, focusing on the task at hand and having the patience recalibrate their expectations, thumb-rules and investment heuristics. of almost an ascetic! 3 “Advisory services are provided through Karvy Stock Broking Ltd. (PMS) having SEBI Registration No: INP000001512. Investments are subject to market risks. Please read the disclaimer on slide no.19”
  • 4. Economic Update - Snapshot of Key Markets 120 Sensex Nifty S&P 500 Nikkei 225 As on 29th Change over Change over 115 110 Feb 2012 last month last year 105 100 95 BSE Sensex 17753 3.3% (0.4%) 90 85 80 Equity S&P Nifty 5385 3.6% 1.0% 75 Markets S&P 500 1366 4.1% 2.9% 9.30 Nikkei 225 9723 10.5% (8.5%) 8.80 10 yr Gsec 8.30 7.80 7.30 6.80 10-yr G-Sec Yield 8.20% (8 bps) 20 bps Debt Markets Call Markets 9.05% (5 bps) 220 bps 31000 Gold Fixed Deposit* 9.25% 0 bps 100 bps 29000 27000 25000 23000 21000 19000 RICI Index 3915 4.4% (6.2%) 17000 15000 Commodity Gold (Rs./10gm) 28599 1.7 37.5 Markets Crude Oil ($/bbl) 124.02 12.5% 10.5% 56.00 54.00 `/$ 52.00 50.00 48.00 46.00 44.00 Forex Rupee/Dollar 48.94 1.52% (7.68%) 42.00 40.00 Markets Yen/Dollar 80.47 (4.8%) 1.6% * Indicates SBI one-year FD 4
  • 5. Economy Update - Global • The Consumer Price Index for all Urban Consumers increased 0.2% in January on a seasonally adjusted basis. Over the last 12 months, the all items index increased 2.9% before seasonal adjustment. US • Total U.S. nonfarm payroll employment rose by 243,000 in January 2012. The unemployment rate decreased by 0.2% to 8.3% from an 8.5% in December 2011. Job growth was widespread in the private sector, with large employment gains in professional and business services, leisure and hospitality, and manufacturing. • The European Central Bank released the second round of its 3-year LTRO operation on 29th February 2012, which amounted to €529.53 billion to support the banking sector and help stem the crisis. This allotment Europe was higher than the amount of €489 billion the ECB had allotted in month of December 2011. • Consumer prices in the 17 countries that use the euro rose by 2.6%(y-o-y) in January 2012 down from 2.7% in month of December 2011. • The seasonally adjusted Markit /JMMA Purchasing Managers’ Index (PMI) was at 50.5 in February, slightly down from 50.7 in January, signalling a continued, albeit marginal, improvement in manufacturing sector business conditions. Japan • Japan's unemployment rate inched up to 4.6% in January from a revised 4.5% in the previous month while household spending fell by 2.3% year-on-year. Japan's core consumer prices fell 0.1% in January from a year earlier, the fourth consecutive month of decline. • India’s activity in the manufacturing sector continued to expand in February, although at a slightly slower pace. The seasonally adjusted HSBC Purchasing Managers’ Index (PMI), registered 56.6 in February, Emerging slightly down from 57.5 in January. economies • China’s HSBC Purchasing Managers’ Index – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – registered 49.6 in February, up from 48.8 in the preceding month. 5
  • 6. Economy Outlook - Domestic 10.0% IIP • The double-digit expansion of consumer non-durables for 8.0% the second month in a row (14.4% in November 2011 and 6.0% 13.4% in December 2011) suggests some revival in consumer spending on non-durable items, following a moderation in 4.0% food inflation. 2.0% 0.0% Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -2.0% 10 11 11 11 11 11 11 11 11 11 11 11 11 • Gross domestic product in India - Asia's third-largest -4.0% economy - grew at an annual 6.1% in the third quarter. It is a -6.0% significant slowdown from 6.9% in the previous quarter and marks the fourth straight quarter of growth below 8%. • India's industrial output recorded a slow growth of 1.8% in December from 5.9% growth in November with a • The sluggish growth can be attributed to poor performance weaker performance across all the use-based categories of the manufacturing, mining and farm sectors. The except consumer non-durables. The November growth slowdown in the manufacturing sector, coupled with decline had also benefitted from factors such as a benign base in mining and quarrying, is likely to put pressure on the effect and spurt in production levels following fewer Reserve Bank of India to cut interest rate at its mid-quarter working days in October 2011 related to the festive monetary policy review on March 15, 2012. season, amidst others. • In particular, capital goods underwent a contraction for GDP growth 8.6 the fourth consecutive month, with a steep 16.5% de- 9.0 8.1 8.4 8.3 7.8 7.7 growth in December 2011, whereas intermediate goods 8.0 6.9 displayed a contraction of 2.8% in the same month. 7.0 6.1 6.0 • Basic goods and consumer durables expanded by a modest 4.0% and 5.3%, respectively, in December 2011, 5.0 suggesting that demand for final goods remains moderate. 4.0 FY10(Q4) FY11(Q1) FY11(Q2) FY11(Q3) FY11(Q4) FY12(Q1) FY12(Q2) FY12(Q3) 6
  • 7. Economic Outlook - Domestic Growth in credit & deposits of SCBs  The Wholesale Price Index (WPI) based inflation, which has remained in double digits for almost two years, 24.0% Bank Credit Aggregate Deposits declined further to 6.55% in January 2012 from 7.47% in 22.0% the previous month. The moderation in January 2012 20.0% was led by a fall in food inflation with prices in the 18.0% manufactured and primary segment falling due to good 16.0% harvest. 14.0% 12.0%  Wholesale food prices for the month of January grew at 10.0% 0.52% compared to 0.74% in December. Prices of manufactured goods rose by 6.49%, moderating from 7.41% rise recorded in December. Notably, the WPI for the month of November has been revised upwards to 9.46% from 9.11%.  As on January 27, bank credit grew by 50 bps i.e. 6.5% on a y-  The Consumer Price Index, which was introduced keeping o-y basis. The aggregate deposits grew by 15.7% on a y-o-y in mind that demand-side pricing would be a better basis witnessing a decline of 150 bps as compared to last indicator of inflation stood at 7.65% for January. The new month. CPI data was launched early last year and will gradually displace WPI data as the primary indicator of inflationary trends in India  We believe that if the February inflation numbers come around 10.0% 6.5%, RBI might start repo rate cuts very soon. We expect a 9.5% cumulative repo rate cut of 100 bps for this calendar year. 9.0% 8.5% 8.0% 7.5% WPI 7.0% 6.5% 6.0% * End of period figures 7
  • 8. Equity Outlook With monetary policy remaining extremely easy in developed part of the world and developing markets like China & India starting the monetary easing cycle, we expect 2012 to be a good year for equities with India emerging as a big outperformer. European debt markets have calmed down due to massive liquidity injection (LTRO 1) done by European central bank. Bond yields of PIIGS countries have been coming down. This supply of liquidity has resulted in big rally in risk assets across the world. Greece has been able to arrive at a deal with private bond holders and European authorities resulting in a fresh bailout package. With new LTRO facility delivering 529 billion Euros to European banks, we expect the risk-on trade to continue. Performance of Indices since the Beginning of LTRO 1 USD INR, -6.6% CRB Index, 7.2% MSCI Asia Pacific, 13.0% Peformance (%) Nifty, 12.5% FTSE, 10.1% DowJones, 7.2% DXY, -1.9% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 8
  • 9. Equity Outlook RBI has started the reversal of the tight monetary policy with a 50 bps cut in cash reserve ratio (CRR). We would expect a further CRR cut in the March policy. We believe that if February inflation number comes around 6.5%, RBI might start repo rate cuts very soon. We expect a cumulative repo rate cut of 100 bps for this calendar year. The biggest beneficiaries of the reversal in policy would be interest rate sensitive sectors like banks, autos and capital goods. Union budget would be tabled on 16th March. We expect the finance minister to move towards Fiscal consolidation by capping fiscal deficit. Expenditure on various social sector programme and subsidies might be raised by a limited amount. Revenue increasing measures like Increase in excise duty and widening of service tax net are expected. Government might also focus on accelerating infrastructure spending particularly for power segment. The government might also address issues like fuel linkage and environmental clearance for coal mines. Also, we expect removal of import duty for coal. These measures would be positive for power and infrastructure sectors. We believe that going forward GDP growth will bounce back to 7-7.5% with monetary easing resulting in a boost to infrastructure activity. We expect that inflation would come down this year and could average around 7% leading to nominal growth of 14-15%. That would lead to corporate earnings growth of 15%. We expect Sensex earnings of INR 1300 for FY13 and around 1500 for FY14. We arrive at a year end Sensex target of 22500 based on 15 times FY14 earnings which would give an upside of 30% from current levels. 9
  • 10. Sector View Sector Stance Remarks The USD 1 trillion Infra opportunity is hard to ignore. However, The significant slowdown in order inflow activity combined with high interest rates has hurt the sector. Now since the interest rate cycle has E&C Overweight started to reverse, we have turned more constructive on this space. Expected budget push will also be a trigger. Financial sector is undeniably the lubricant for economic growth. Whether the growth comes from consumption or investments, credit growth is inevitable. Being a well regulated sector, BFSI in India has BFSI Overweight good asset quality and capital adequacy ratios. The reversal of the interest rate cycle will assist in managing asset quality better and would lead to increase in credit growth We believe in the large sized opportunity presented by Pharma sector in India. India’s strength in generics is difficult to replicate due to quality and quantity of available skilled manpower. With the Healthcare Neutral developed world keen to cut healthcare costs, and a vast pipeline of drugs going off-patent, Indian Pharma players are at the cusp of rapid growth. We would bet on the opportunity in Generics and CRAMS space We prefer “discretionary consumption” beneficiaries such as Cigarettes and branded garments, as the FMCG Neutral growth in this segment will be disproportionately higher vis-à-vis the increase in disposable incomes. The regulatory hurdles, competitive pressures and leverage prevent any return to high profitability levels Telecom Neutral in the short to medium term. However, incumbents have started to increase tariffs slowly and we believe that consolidation will happen sooner than expected. 10
  • 11. Sector View Sector Stance Remarks While US and European customers of Indian IT companies are in good health, Order inflows might slow IT/ITES Neutral down in near term. However, in the next few quarters big rupee depreciation will provide cushion to IT companies earnings . Demand outlook remains robust with strong earnings growth. Raw material prices have started coming Automobiles Neutral down which would boost margins. We are more bullish on two-wheeler and agricultural vehicles segment due to lesser competition and higher pricing power. Commodity prices have corrected significantly over the last few months due to concerns about growth Metals Neutral in developed parts of the world. We believe the commodity prices will bounce back once growth recovers and hence would be positive on industrial metals space. Cement demand will certainly grow over the next three years. With pricing power returning, e are Cement Neutral becoming constructive on this space. We like the regulated return characteristics of this space. This space provides steady growth in Power Utilities Neutral earnings and decent return on capital. We would stay away from oil PSUs, due to issues of cross subsidization distorting the underlying Energy Underweight economics of oil exploration and refinery businesses. 11
  • 12. Debt Outlook 11.0 9.30 10.5 Yield curve 10-yr G-sec yield 10.0 8.80 9.5 9.0 8.30 (%) 8.5 8.0 7.80 7.5 7.30 7.0 6.5 6.80 6.0 5.3 0.0 0.9 1.8 2.7 3.5 4.4 6.2 7.1 8.0 8.8 9.7 10.6 11.5 12.4 13.3 14.1 15.0 15.9 16.8 17.7 18.5 19.4 • The 10 year benchmark G–Sec yield decreased by 8 bps in February to close at 8.20%. • The 10-year G-sec yields were rather volatile and started dipping in the month end due to the GDP figures which came in at 6.1%, below market expectations. The LTRO announcement though helped the yields to jump back and end at 8.24% on 1st March 2012. • The AAA rated corporate bonds are giving an yield of around 10.75%. 12
  • 13. Debt Strategy Category Outlook Details With the pause by RBI and the expected trend reversal of the interest rates, we would not recommend investment in Shorter Short Tenure term debt funds unless money necessarily needs to be parked for Debt the shorter term by the investor. However, the ST funds still have high YTMs (9.5% – 10%) providing interesting investment opportunities to clients for the shorter term. Some AA and select A rated securities are very attractive at the Credit current yields. A similar trend can be seen in the Fixed Deposits also. Tight liquidity in the system has also contributed to widening of the spreads making entry at current levels attractive. With the expected trend reversal in the interest rates, we would strongly recommend investment in Longer term papers. These, while Long Tenure being available at attractive yields, also provide an opportunity for Capital appreciation due to a decrease in interest rates. Hence, these Debt would be suitable for both - investors who may want to stay invested for the medium term (exiting when prices appreciate) and those who would want to lock in high yields for the longer term. 13
  • 14. Forex Rupee movement vis-à-vis other currencies (M-o-M) Trade balance and export-import data 100 0 Export Import Trade Balance (mn $) 8.00% 80 -5000 60 -10000 6.00% 40 -15000 20 4.00% 0 -20000 -20 -25000 2.00% • India’s exports grew 10.1% to $25.35 billion in January 0.00% USD GBP EURO YEN 2012, compared to $23.02 billion in the same year-ago -2.00% month, while imports were up 20.25% at $40.10 billion translating into a trade deficit of $14.75 billion. 140000 • Indian rupee posted a second straight month of gains against Capital Account Balance the US Dollar. The rupee appreciated by 1.52% against the 90000 dollar in month of February. 40000 • However, surging crude oil prices and their cascading impact on inflation and growth in India, which imports about 80 per -10000 FY 10 (Q3) FY 10 (Q4) FY 11 (Q1) FY 11 (Q2) FY 11 (Q3) FY 11 (Q4) FY 12 (Q1) FY 12 (Q2) cent of its oil requirements, is expected to limit the rise in the rupee. • The projected capital account balance for Q2 FY 12 is at Rs. 84,400 Cr. while the Q1 figure was revised upwards to • Rupee depreciated against Euro due to expectation during Rs.1,02,100 Crores. the month that European Central Bank (ECB) will inject • We expect factors such as higher interest rates to attract nearly half a trillion Euros into banks in three-year more investments to India. Increased limits for investment refinancing operation. by FIIs would also help in bringing in more funds though uncertainty in the global markets could prove to be a dampener. 14
  • 15. Commodities Having staged a good up move during most of February, gold went 30000 for a sharp selloff following comments from the Feb Chairman Ben Gold 28000 Bernanke. The expectation of QE3 that the metal market has been pricing did not materialize the way the markets were expecting, 26000 thereby denting its safer haven status, while ECB announcing LTRO2 Precious postponed the default events in the Euro zone which triggered profit 24000 taking amongst the bulls. On the flip side, any such sharp down fall is 22000 Metals currently supported by the physical off take. But, given the festive 20000 and marriage season behind us, expect weakness in the counter. 18000 Nevertheless, gold was behaving as we expected and as quoted 31/Jan/11 31/Dec/10 31/Dec/11 31/Mar/11 31/May/11 28/Feb/11 30/Apr/11 31/Jul/11 30/Sep/11 30/Nov/11 31/Oct/11 30/Jun/11 31/Aug/11 earlier, we expect softness in during the 1HCY2012. Expect range bound markets with a negative bias. 130.0 As the US and Europe are out of the woods so far, the expectation of Crude 125.0 economic revival pushed Crude Oil prices further higher. Iran issue continues to be centre of focus, while U.S. officials escalated 120.0 warnings that the nation may join Israel in attacking Iran to stop the Oil & Gas 115.0 development of nuclear weapons. Despite, Saudi Arabia deploying 110.0 the most oil rigs in four years as it prepares for possible shortages caused by tension with Iran, the recent rumours of Saudi pipeline 105.0 explosion further pushed prices higher. We continue to maintain our 100.0 bullish stance on oil and expect oil to trade at an elevated levels 95.0 with a possibility of spike moving forward. 90.0 31-… 31-… 28-… 31-… 30-… 31-… 30-… 31-… 31-… 30-… 31-… 30-… 31-…
  • 16. Real Estate Outlook - I Asset Classes Outlook In the residential space, low sales volumes have led to a sharp decline in the absorption rate from 21.4% in Q1 2011 to 11.5% in Q3 2011. However, strong pre-launch sales have kept the developers far from any correction. Though sales have gone down to almost 35% as compared to last year, no correction has been witnessed in the prices. The over-supplied locations remain stagnant and are expected to remain so for the next two quarters. In cities like Pune, NCR, Hyderabad, Chennai and Bangalore entry points in the range of Rs. 3000 – Rs. 4600 per Residential Sqft are still valued by first time home -buyers. Infrastructure development and the new airports in these cities have supported the residential development. On an average, prices in this segment still remain affordable. Mumbai stands tall with prices at the peak in an over-supplied market also. Corrections are being reported by media, however not being witnessed on ground level. The retail investors (second home buyers) and HNI investors are postponing their decision due to expectations of price correction. Average q-o-q rental growth in 3Q11 was recorded at 2.5%. Mumbai SBD BKC was among the most expensive markets and Bangalore and Chennai among the least expensive in Asia Pacific, on the basis of Net Effective Rents. Among the fastest growing office market in the world, India is constructing 100 million Sqft every 7-10 quarters. Office stock is expected to become 500 million Sqft by 2015. The Net Absorption is expected to grow from 30.5 million Sqft in 2010 to 39.1 million Sqft in 2013. Absorption rate has been recorded at 13.3% in 3Q11. 8.5 million Sqft of office space was absorbed in 3Q11 compared to 10.5 million sq ft in 2Q11. Commercial/IT Still in the shadows of over-supply and cautious expansion approach by corporates, this segment has gone through a correction. Rates per Sqft have seen almost 30% down-trend and is expected to be stagnant for the coming 2-3 quarters. After this correction we believe the segment is bottoming out and is the best time to buy for companies looking at long term holding of real estate office space. With signs of recovery in the global economy, the Indian office markets are expected to be nearing the end of the downturn. Despite improving demand conditions, vacancies are rising in the short term due to massive infusion of office space. Markets of Bangalore, Mumbai and NCR-Delhi are leading the property cycle as rentals have started to increase in these markets. 16
  • 17. Real Estate Outlook - II Asset Classes Outlook The FDI allowance has given lot of impetus to this sector. Since 2009 retail has seen a major transformation in all its business aspects and has been built to suit Indian way of consumerism. Low cost, wide reach, more variety, less innovation, close existence with competition, maximizing bottom line than top-line approach have been making the retailers smarter. In the retail space, unorganized markets are still a preferred choice. Most high-street locations are still expensive. Investors prefer Hi-street locations than malls since they would always have capital appreciation due to dearth of available space. Retail Of 9.9 mn sq ft forecasted for absorption in 2011, 7.1 mn sq ft has already been absorbed till 3Q11 and another 1.3 mn sq ft is pre-committed. The northern regions of India rate high on propensity to consume followed by the western, eastern and southern regions. Industrial towns are similar to each other in consumer preferences and socio-economic & demographic profiles. Most of them remain equally under-served despite recent mall developments in the last couple of years. The trend of investment in land is still nascent since lack of transparency and unclear national land acquisition policy/rules makes it tough for the organized players/investors to transact. However this seems to be a very interesting time to buy land which is being traded more as a commodity now. It is getting absorbed fast. Land Land sees immense opportunity since it can be used as a tangible asset and is the most credible pledge against business. With the growing commitment of the Government in improving infrastructure (roads, bridges, airports, rail metros), in the last 5 years many far flung areas now have very good connectivity to the CBD locations. The IC note is proposed to be presented every quarter 17
  • 18. Why Karvy Private Wealth? Open Architecture – Widest array of products We are an open-architecture firm at two levels – asset class level and product level : • Offering COMPREHENSIVE choice of investing across all asset classes • Offering EXTENSIVE choice of multiple products from different product providers under each asset class Intensive Research We closely track the historical performance across asset classes, sub-asset classes and product providers to identify, evaluate and recommend investment products (KPW’s or third-party). We have our own proprietary methodology for evaluating products; for product providers, we also note the investment style and risk management philosophy. Our comprehensive analysis determines truly exceptional performers to be added to your portfolio Honest, unbiased advise Group-wide, we have no Mutual Fund or Insurance products of our own unlike most of the financial services groups (banks or broking houses), who are doing wealth management. Neither do we have exclusive tie-up with any single insurance company like all banks do. The KPW 3-S Service promise: When you become a Client of KPW, besides getting intelligent & practicable Investment Advice, you get the benefit of “The KPW 3- S Service Promise” : • Smooth and Hassle Free – Attention, Service & Convenience • Sharp and proactive – Portfolio monitoring and tracking • Smart –Incisive insights on markets and Investment products Pedigreed Senior Management Team A talented team of leaders with global and Indian experience, having a unique blend of backgrounds of wealth management, private equity, strategy consulting and building businesses powers Karvy Private Wealth and its operations. 18
  • 19. Disclaimer The information and views presented here are prepared by Karvy Private Wealth(a division of Karvy Stock Broking Limited) or other Karvy Group companies. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended here may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned here, investors may please note that neither Karvy nor any person connected with any associated companies of Karvy accepts any liability arising from the use of this information and views mentioned here. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above-mentioned companies from time to time. Every employee of Karvy and its associated companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd. The information given in this document on tax are for guidance only, and should not be construed as tax advice. Investors are advised to consult their respective tax advisers to understand the specific tax incidence applicable to them. We also expect significant changes in the tax laws once the new Direct Tax Code is in force – this could change the applicability and incidence of tax on investments Karvy Private Wealth (A division of Karvy Stock Broking Limited) operates from within India and is subject to Indian regulations. Karvy Stock Broking Ltd. is a SEBI registered stock broker, depository participant having its offices at: 702, Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra (East), off Bandra Kurla Complex, Mumbai 400 051 . (Registered office Address: Karvy Stock Broking Limited, “KARVY HOUSE”, 46, Avenue 4, Street No.1, Banjara Hills, Hyderabad 500 034) SEBI registration No’s:”NSE(CM):INB230770138, NSE(F&O): INF230770138, BSE: INB010770130, BSE(F&O): INF010770131,NCDEX(00236, NSE(CDS):INE230770138, NSDL – SEBI Registration No: IN-DP-NSDL-247-2005, CSDL-SEBI Registration No:IN-DP-CSDL-305-2005, PMS Registration No.: INP000001512” 19
  • 20. Contact Us Bangalore 080-26606126 Chennai 044-45925923 Coimbatore 0422 – 4291018 Delhi 011-43533941 Gurgaon 0124-4780228 Hyderabad 040-44507282 Kochi 0484 – 2322152 Kolkata 033-40515100 Mumbai 022-33055000 Pune 020-30116238 Email: wealth@karvy.com SMS: ‘HNI’ to 56767 Website: www.karvywealth.com Corporate Office : 702, Hallmark Business Plaza, Off Bandra Kurla Complex, Bandra (East), Mumbai – 400 051 20