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Monthly Report

November 2012

Retail ResearchMonthly Report November 2012

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Table of ContentsTable of ContentsTitle Slide No.Monthly Equity Commentary 03

Market Statistics 06− Market Statistics 06− Bond yields, commodities and currencies 09− Comparison of Equity Returns in various emerging

markets 14 − Outlook Going Forward 20

Technical Commentary 28Learning Technical Analysis 32 Derivatives Commentary 36Derivatives Commentary 36Learning Derivatives 38Extract of Calls during October 2012 42FII & Mutual Fund Flow & Indices moves during October 2012 44 Gainers & Losers – October 2012 45Disclosure 46


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Monthly Equity Commentary1-1.BSE SENSITIV.BSE - 02/11/12 Trend7

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After two consecutive months of upmove, the Indian Markets took a breather, witnessing some correction in themonth of October. The BSE Sensex & Nifty ended the month with losses of 1.4% & 1.5%.

The market edged higher in the first week ended Oct 05, as investors lapped up shares in anticipation ofgovernment unveiling more measures to attract the foreign inflows. The market sentiment was also boosted

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g g gby data showing that FIIs remained buyers of Indian stocks during the week. The BSE Sensex & Nifty ended higherby 0.9% & 0.8% respectively. The approval of legislative changes by the cabinet that will allow up to 49%foreign equity in pension sector and hike such limit in insurance to 49% from 26%, lowering of India’s currentaccount deficit (which fell to $16.55 bn in June quarter from an all time high of $21.76 bn in March quarter) andimprovement witnessed in India’s service sector activity (HSBC PMI for the services sector rose to 55.8 in Septfrom 55 in Aug fastest growth in seven months) were some of the positive highlights during the week which


from 55 in Aug, fastest growth in seven months) were some of the positive highlights during the week, whichsupported the market gains.

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Monthly Equity Commentary contd…

The market tested the patience of traders during the second week ending Oct 12. The indices first displayeduncertainty, then hope & ended the week on a confused & weak note. India’s IIP numbers for the month ofAugust were better than expected (growth of 2.7%), but it failed to cheer the market. Global credit ratingagency Standard & Poor's (S&P) warned that India still faced a one-in-three chance of a credit ratingdowngrade to junk status within the next 24 months as it expects the government's fiscal deficit to be higherthan its budgeted estimate, at 6% of GDP for FY13. The agency has cut GDP growth estimates for FY13 to 5.5%than its budgeted estimate, at 6% of GDP for FY13. The agency has cut GDP growth estimates for FY13 to 5.5%from 7% previously, to reflect soft domestic and external demand. Further, the World Bank lowered its fiscalyear economic growth forecast for India to 6% due to infrastructure problems and slow policy reform, andwarned there is a high risk that growth could slow further if economic conditions in Europe deteriorate.Moreover, India's merchandise exports fell 10.8% in Sept 2012, while imports rose 5.09%. All these negativenews weighed heavily on the indices during the week, as the BSE Sensex & Nifty fell 1.4% & 1.2% respectively.

The Indian markets ended marginally in the green for the third week ending Oct 19. The BSE Sensex & Niftyreported gains of 0.04% & 0.1% respectively. The domestic news during the week were not encouraging. Headlineinflation for September rose to 7.81% on higher food prices and a hike in diesel prices. India’s food subsidy billswelled to over Rs.101,879 crore in the first six months of FY13, 36% more than the Budget estimate for FY13,according to a calculation made by the Food Corporation of India (FCI). Further, political worries in India keptthe market on the edge as the Opposition parties stepped up pressure on the government for an independentthe market on the edge as the Opposition parties stepped up pressure on the government for an independentinquiry into the land deal between Congress chief Sonia Gandhi's son-in-law Robert Vadra and realty majorDLF. However, the markets managed to hold on to marginal gains in the week on encouraging global cues as eurozone debt worries eased after Moody's Investors retained Spain's sovereign-debt rating at investment grade.

Indian indices ended marginally lower in the fourth week ending Oct 26. The BSE Sensex & Nifty ended lower by0 3% & 0 4% respectively The market sentiments were subdued due to lack of any major announcements from0.3% & 0.4% respectively. The market sentiments were subdued due to lack of any major announcements fromGovernment. The F&O expiry also had an impact on the market performance for the week. Corporate earningswere mixed and failed to give clear direction to the markets. Among the economic news, the government'sdebt in the July-September period in this financial year grew by 3.6% over previous quarter of last year. Thepetrol prices were hiked by 29 paise per litre and diesel by 20 paise on Oct 27 after the Government decided toincrease the commission paid to petrol pump dealers. Further, the country’s natural gas production dropped


nearly 15% in September.

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The last three trading sessions were also subdued, as the BSE Sensex & Nifty reported losses of 0.6% & 0.8%respectively. The markets were disappointed as the RBI, on Oct 30, kept its key policy rate viz. the repo rateunchanged at 8% after second quarter review of Monetary Policy 2012-13, citing high inflation, even as thecentral bank further cut its GDP growth forecast for 2012-13. The disappointment was compounded after thecentral bank signaled that no further policy easing would take place until the Jan-March quarter of next year.It however cut the CRR by 25 bps. A bounce back on the last day of the month, due to encouraging global cuesIt however cut the CRR by 25 bps. A bounce back on the last day of the month, due to encouraging global cuesrestricted the monthly losses of the Indian Markets.

Given below is an overview of global markets’ performance during October 2012:

The world markets ended the month of Oct 2012 on a mixednote Hong Kong & Indonesia were the top two performers

Indices 28-Sep-12 31-Oct-12 % Change

US - Dow Jones 13437.1 13096.5 -2.5note. Hong Kong & Indonesia were the top two performers,which ended the month with decent gains of 3.8% & 2.1%respectively. UK, Germany & Japan also managed to closemarginally in the green by 0.7%, 0.6% & 0.7% respectively.Among the losers, US (Nasdaq) and Brazil fell the most by4.5% & 3.6% respectively. India (Sensex) ended the month with

US - Nasdaq 3116.2 2977.2 -4.5

UK - FTSE 5742.1 5782.7 0.7

Japan - Nikkei 8870.2 8928.3 0.7

Germany - DAX 7216.2 7260.6 0.6

Brazil - Bovespa 59175.9 57068.0 -3.6

Singapore - Strait Times 3060.3 3038.4 -0.7

Hong Kong Hang Seng 20840 4 21641 8 3 81.4% losses, while Singapore & China ended lower by 0.7% &0.8% respectively.

Average daily volumes on BSE during the month of Oct 2012 rose 4 2% M-o-M (NSE daily average volumes were

Hong Kong – Hang Seng 20840.4 21641.8 3.8

India - Sensex 18762.7 18505.4 -1.4

India - Nifty 5703.3 5619.7 -1.5

Indonesia - Jakarta Composite 4262.6 4350.3 2.1

Chinese - Shanghai composite 2086.2 2068.9 -0.8

Average daily volumes on BSE during the month of Oct 2012 rose 4.2% M o M (NSE daily average volumes werelower by 1.2% - M-o-M). The average daily derivatives volumes on NSE fell marginally by 0.3% to Rs. 1,29,248 crin Oct (In Sept: Rs. 1,29,597 cr). Mutual funds were net sellers for Rs. 2,520 cr during the month of Oct 2012after being net sellers of Rs. 3,199 cr in Sept 2012. Strong FII buying was witnessed during the month of Oct2012. FIIs were reported as net buyers to the tune of Rs. 9,578 cr (excluding the data for Oct 25) in cashmarkets after being net buyers of Rs. 19,978 cr in Sept 2012. FIIs were net buyers in 16 out of 20 trading


sessions in the month (not including Oct 25 in the number of sessions).

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The sectoral indices ended on a mixed note last month. Power, PSU, Realty and Metals were the top fourlosers, which fell by 4.7%, 4.2%, 4.1% and 3.6% respectively. The major gainers were FMCG and Healthcare,which rose by 3.3% and 1.2% respectively.

FMCG index was the best performer of the month. Among the heavyweights in the sector, Godrej ConsumerProducts, Nestle India, Colgate Palmolive and ITC rose by 8.4%, 7.1%, 6.5% and 4.0% respectively. FMCG stocks

l h l d hrose as Foreign institutional investors (FIIs) have scaled up their investments in most consumer companiesto their highest ever during the second quarter of the current financial year, signaling that India's consumptionstory remains a hot favorite despite bleak outlook and stagnating sales of global counterparts. While Dabur sawthe highest increase in FII stake in the period under review up by 1.5 percentage points to 19.2 %, FII’s interest inGSK Consumer too rose to 14.5 per cent during quarter ended September as compared to June quarter.The BSE FMCG Index outperformed the Sensex and posted an absolute return of 13.2 % during the quarter,The BSE FMCG Index outperformed the Sensex and posted an absolute return of 13.2 % during the quarter,which, may be due to expansion of global liquidity and not the expectations of growth in balance sheet ofthese FMCG companies. ITC had hit record high on 19 October 2012 after it announced strong Q2 results.

The Healthcare index ended the month on a positive note gaining 1.22%. Among the heavyweights in thesector, Wockhardt, Divis Lab and Apollo Hospital, gained 16.1%, 11.1% and 7.1% respectively. Among otherstocks, Piramal Healthcare, Dr Reddys Lab and Strides Arcolab gained the most by 6.7%, 6.6% and 1.3%, , y g y ,respectively. Apollo Hospitals Enterprise rose taking the total stock return to almost 28 % since the start ofSeptember. This upside has been provided by hopes of Apollo Hospital being able to unlock values inthe pharmacy business after the government allowed foreign direct investment (FDI) in retail. The pharmacybusiness that contributes around 27% to the revenues also turned profitable in FY12. Analysts see profitability ofthis business improving from here on. Besides, the company is also aggressively expanding its hospital bedcapacity and is likely to add 35% more beds by FY15 Dr Reddy's rose on the news that it has interest in buyingcapacity and is likely to add 35% more beds by FY15. Dr. Reddy s rose on the news that it has interest in buyingOctoPlus, Amsterdam for an offer price of about £ 27.4 m or Rs 1.9 bn. This amount would give Dr. Reddy'soutright or 100% stake in OctoPlus. As reported by Dr. Reddy's management, this deal would help the companyramp up its technological capabilities and intends to build its research base in Leiden (Netherlands). Thisacquisition is slated to take place by the end of the current fiscal year and would be an all cash deal.


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After being reported as the gainer in the month of September, the Power index was the top loser during themonth. Power stocks fell. Reliance Infra, Torrent Power & BHEL, which contribute 22% to the overallweightage of the power index, fell 12.9%, 12.7% & 8.8% respectively during the month. Power equipmentmajor Bharat Heavy Electricals (Bhel) declined 1.32%. Bharat Heavy Electricals Ltd, India's biggest powerequipment maker, posted a bigger-than-expected 10% drop in its quarterly net profit on falling orders in aslowing economy. India's power sector has been badly hit by shortages of coal and gas supplies, delays inslowing economy. India s power sector has been badly hit by shortages of coal and gas supplies, delays inenvironmental approvals for power and mining projects and drying up of funding, severely denting the demandfor equipment. Many brokerages have downgraded BHEL in the last few months, citing increased competition,slowdown in new orders and pricing pressure in an economy that slowed to 5.5% growth in April-June, the lowestlevel in nearly three years. Its net profit in the fiscal second quarter fell 10% from a year ago to 12.7 bn rupees,while net sales in the period was nearly unchanged at 104 billion rupees.

Realty fell by 4.08% in October 2012. Among the sector heavyweights DLF, Unitech and Godrej properties lost13.3%, 4.9% and 3.1% respectively. Interest-rate sensitive realty stocks fell after RBI kept key lending rateunchanged, and lowered economic growth estimate to 5.8% for 2012-13, from 6.5% projected earlier. Therealty index was third worst hit in on the BSE, losing 4.08% to 1,771.6. Shares in the rate-sensitive real estatesector came under heavy selling pressure on account of profit booking, following a sharp run-up in thesestocks in the recent rally Investor sentiment towards the sector was further dented after headline inflation instocks in the recent rally. Investor sentiment towards the sector was further dented after headline inflation inSeptember rose to a 10-month high of 7.8 %, dashing hopes of a rate cut later this month. The BSE realtyindex had risen 22 % in September, outperforming the Sensex, which gained 7.6 %.

The PSU index ended in the red at the end of October 2012. PNB, Bank of Baroda, GAIL and BHEL lost 12.0%,9.2%, 8.9% and 8.8% respectively. Among other stocks, SBI, Power Grid Corporation, ONGC and Coal India fell5 7% 5 2% 4 3% and 3 7% respectively Punjab National Bank plunged after it reported deterioration in asset5.7%, 5.2%, 4.3% and 3.7% respectively. Punjab National Bank plunged after it reported deterioration in assetquality for the second straight quarter. PNB's net profit fell 11.5 per cent in the July - September quarter, withbad loans as a percentage of total assets rising to 2.69 %, from 0.84 % a year ago. GAIL fell as its Septemberquarter profit declined around 10% over the same period last year. This was mainly due to the sharp fall inprofit in the trading and LPG transmission businesses, and higher subsidy burden. The company’s debt ataround Rs 6,640 crore has doubled since last September. SBI declined as the bank cut its benchmark prime-


lending rate by 25 basis points to 14.5% pa with effect from 27 Sept 2012. Another contributor to the index.

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The Metal index stocks fell across the board as LMEX, a gauge of six metals traded on the London MetalExchange dropped. Jindal Steel, Coal India, Hindalco, JSW Steel and Tata Steel lost 9.4%, 3.7%, 3.4%, 2.3% and2.1% respectively. JSW Steel declined as the company has denied criminal conspiracy charges and has issued astatement after media reports that JSW Steel had entered into criminal conspiracy with certain persons for notinsisting on recovery of Rs 890 crore from the company for causing alleged loss to Mysore Minerals (MML), aKarnataka state government undertaking.Karnataka state government undertaking.

Top gainers amongst the F&O stocks included Karnataka Bank (up 24.2%), NHPC (up 11.7%), NCC (up 11.6%)& Divis Labs (up 10.8%). Even J. P. Power, Federal Bank, Syndicate Bank, Yes Bank, Century Textiles and AdaniEntreprise also did well, rising in the range of 7-9%. Major losers from the F&O space included IRB Infra (down19.7%), GMR Infra (down 19.2%), CESC (down 17.2%), RCom (down 16.7%) and Pantaloon (down 16.1%). SCI,IVRCL Infra, Gujarat Fluro, LIC housing & GVK Power were some of the other underperformers, which fell in theIVRCL Infra, Gujarat Fluro, LIC housing & GVK Power were some of the other underperformers, which fell in therange of 13-15%.

Fund Activity:In the equity space, the FIIs were reported as strong net buyers ofRs. 9578 cr in Oct 2012 (In Sept, they were net buyers of Rs. 19978cr) In the F&O space the FIIs were net buyers in the Index

FII Activity (Rs. in Cr) Net Buy / Sell Net Buy / Sell Open Interest Open Interest

Oct-12 Sep-12 Oct-12 Sep-12

E i i (C h) 9578 19978 cr). In the F&O space, the FIIs were net buyers in the IndexFutures segment, while the open interest declined over Sept. Thisindicates squaring up of short positions taken earlier by them inthese segment and also the value impact. In the Index optionssegments, FIIs were net buyers with increase in the open interest,which indicated more buying of options. In the stock futures

FII ll hil h i d d

Equities (Cash) 9578 19978

Index Futures 406 3009 9348 14246

Index Options 7340 2798 46103 39569

Stock Futures -3333 -4052 27838 28821

Stock Options -466 -258 1516 757

segment, FIIs were net sellers, while the open interest decreased.This indicated squaring up of long positions. The Stock Optionssegment witnessed very low participation during the month.


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d i ld

Monthly Equity Commentary contd… Bond Yields:

Indian G-Sec bond yields ended higher by 6 bps at 8.21% at the end of October 2012. Bond yields haveremained mixed in October. G-Sec market closed positive on comments from Deputy Governor H R Khanwhereby he mentioned that the government and central bank needed to work in tandem in order to bringdown fiscal deficit as well as control inflation. Bonds closed up as the Reserve Bank of India dashes hopes ofa cut in key policy rates while cutting the cash reserve ratio by 0 25% to 4 25% from 4 50% This move hasa cut in key policy rates, while cutting the cash reserve ratio by 0.25% to 4.25% from 4.50%. This move hasalso softened expectations for further buy back of bonds by Reserve Bank of India in the near future.

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Commodities:

In October 2012, the Reuters/Jefferies CRB Index of 19 raw materials ended lower by 4.46% to 295.50 thet f i M h th CRB t bl d b l 11 % Thi t f f ll it d

25 8 24 29 2 22 28

P e rio d

worst performance since May, when the CRB tumbled by nearly 11 %.This was on account of a fall witnessedin commodities like Nickel (down by 12.2%), Aluminum (down by 10.1%), Sugar (down by 7.9%), Coffee (down by7.5%), Silver (down by 6.8%), Crude Oil (down by 6.5%), Orange Juice (down by 6.5%), Copper (down by 5.1%),Gold (down by 3.1%), Cotton (down by 0.9%) and Soyabeans (down by 0.7%). The index, a global benchmark forcommodities, tumbled to a 2-1/2-month low as the U.S. dollar rallied against a basket of currencies. Thecurrency weighed on dollar-priced commodities while Europe's continuing debt crisis and a number of weak U.S.


y g p p gcorporate results added pressure. Crop, oil and metals prices mostly fell as Hurricane Sandy caused the firstweather-related stock market closure in 27 years whittling investor activity across financial markets.

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Behaviour of Metal prices (LME 3 month buyer prices) during the month of October 2012 Metals 31-Oct-12 28-Sep-12 % Chg

Aluminium 1911 2126 -10.09%

Copper 7823 8246 -5.13%

Zinc 1875 2113 -11.24%

LME metals ended on a negative note in the month of October. Themajor losers were Nickel, Zinc, Aluminium, Lead, Tin and Copper eachlosing 12.34%, 11.24%, 10.09%, 9.57%, 7.60% and 5.13% respectively forthe month. The industrial metals slid at the LME to a six-week low hit

LME Nickel prices fell the most last month by 12.24% amid profit booking by speculators and weak trend

Nickel 16270 18540 -12.24%

Tin 20050 21700 -7.60%

Lead 2080 2300 -9.57%

the month. The industrial metals slid at the LME to a six week low hitby a strong dollar and lack of robust demand from top metalsconsumer China as the market gave up more gains from its Septemberrally.

overseas. Marketmen said besides profit booking by speculators at prevailing higher levels, subdued demandfrom alloy-makers in the spot market mainly pulled down nickel prices at futures trade. Nickel prices havereached their lowest level since late August.

LME Zinc prices fell in the month of October by 11.24%. A subdued trend in the spot market, owing to weakdemand, has put pressure on zinc prices. Analysts attributed the fall in zinc futures prices to a weakeningtrend in industrial metals on the LME and sluggish demand in the domestic spot market. Zinc has already set afresh five-week low.

LME Alumium prices ended 10.09% down during last month on comments by producer Alcoa Inc which reporteda third-quarter net loss and slashed its aluminium demand forecast.

LME Copper prices ended 5 13% lower in October Copper hit a 7-week low on Monday as the euro fell and asLME Copper prices ended 5.13% lower in October. Copper hit a 7-week low on Monday as the euro fell and asconcern about global growth, heightened by disappointing corporate earnings, dented risk appetite andovershadowed solid U.S. third-quarter economic growth. Inventories of copper on LME saw significantinflows of material, rising. The losses threatened to send copper decisively below a range it has held over thepast month as investors zeroed in on sluggish demand after the market got a shot in the arm from central bankstimulus measures. Sentiment in copper remained bearish after it fell in global markets on speculationth t H i S d ill l i th i th US h ld' d bi b f h l


that Hurricane Sandy will slow economic growth in the US, the world's second-biggest buyer of the metal.

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Gold fell last month by 3.1%. During the month the gold prices exhibited a mixed trend. Gold fell in more thantwo months, as improving U.S. consumer sentiment and jobs data stirred concern the Federal Reserve mightcurb the monetary stimulus that has boosted gold prices. Bullion fell after data showed U.S. consumersentiment unexpectedly rose to a five-year high and as some investors sold the metal after its rally to thehighest in almost 11 months. Recent stimulus measures by central banks boosted gold's appeal as a hedgeagainst inflation and sent prices to an 11-month peak of $1,795.69 an ounce in early October, but a rebound inagainst inflation and sent prices to an 11 month peak of $1,795.69 an ounce in early October, but a rebound inthe dollar and uncertainty in Europe later trimmed gains. The metal has been pressured by worries about a U.S.economic slowdown, which also slammed equities and commodities. Gold also fell after the U.S. FederalReserve stuck to its plan to keep stimulating growth until the job market improves but made few surprises inits policy statement. Weak trend in global markets after data showed that China's manufacturing expanded forthe first time since July, signalling that the slowdown in the second-largest economy is easing and curbing theneed for additional stimulus reduced the demand for the precious metalsneed for additional stimulus, reduced the demand for the precious metals.

Crude oil prices fell 6.5% to a three-month low in October 2012. During the month crude oil prices exhibited amixed trend. Crude oil fell as the threat of gasoline-supply problems and refinery shutdowns raised newconcerns about oil demand and as weak data from Europe and China dimmed the outlook for demand, whileEurope's festering debt crisis added to the gloom. Traders fret that jobs aren't growing fast enough in the U.S.to significantly boost demand for fuel and investors dim view of US corporate earnings after General Electric andto significantly boost demand for fuel and investors dim view of US corporate earnings after General Electric andMcDonald's disappointed, also weighed on sentiment. U.S. crude slipped below $86 a barrel as refineriesalong the East Coast lowered run rates ahead of approaching Hurricane Sandy, reducing crude use in the world'slargest oil consumer. Oil fell sharply as commodity and equity prices were pressured by concerns aboutslowing global economic growth, Europe's continuing debt crisis, and weak forecasts from U.S. corporationsreporting quarterly earnings.

The Baltic Dry Index (BDI), a measure of shipping costs for commodities, rose by 33.9% last month. The BalticDry Index is more influenced by the movement of goods from / to China and primarily that of iron ore. The indexrose amid increased activity in the panamax and capesize segments. Increased demand for coal and iron orefixtures pushed rates for capesizes and panamaxes. The index has been bolstered by firmer activity in thelarger capesize market, which has boosted momentum and as iron ore demand in top consumer China propped


up capesize rates.

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Currencies

The US dollar rose against most of its peers for October 2012 except for the Korean Won, Euro, Singaporedollar and Chinese yuan against which the USD fell by 1.0%, 0.6%, 0.5% and 0.4% respectively for the month.The USD gained the most against the Indian rupee, Pakistani rupee, Japanese yen, Argentine peso,Indonesian rupiah and Brazilian real by 3.1%, 2.7%, 2.2%, 1.9%, 1.1% and 0.6% respectivelyIndonesian rupiah and Brazilian real by 3.1%, 2.7%, 2.2%, 1.9%, 1.1% and 0.6% respectively

Given below is a table that shows the depreciation (-)/appreciation (+) of the dollar against variouscurrencies for the month of October 2012:

USD to: 31-Oct-12 30-Sep-12 % Chg

Pakistani rupee 97.05 94.51 2.7%

Hong Kong dollar 7.75 7.75 0.0%

Chinese yuan 6 30 6 32 -0 4%

The Indian Rupee depreciated by 3.1% last month against thedollar. The rupee edged lower, weighed down by demand forthe greenback from oil importers and tracking losses inChinese yuan 6.30 6.32 -0.4%

Indian rupee 54.10 52.50 3.1%

Taiwan dollar 29.27 29.17 0.4%

Singapore dollar 1.22 1.23 -0.5%

Argentine peso 4.76 4.67 1.9%

Euro 0.77 0.78 -0.6%

Thai baht 30.77 30.59 0.6%

Malaysian ringgit 3.06 3.04 0.7%

Indonesian rupiah 9643 20 9541 98 1 1%

g p gdomestic share markets and also after rating agency Standard &Poor's said downgrade risks remained even after the currentspate of reforms. Dealers said dollar buying by state-run refinersand weak local stocks have contributed to the weakness in rupee.The sentiment was also dampened after the headline inflationrose to its highest level this fiscal at 7 81% in Sept India’sIndonesian rupiah 9643.20 9541.98 1.1%

Japanese yen 79.65 77.90 2.2%

Brazilian real 2.03 2.02 0.6%

Korean won 1094.21 1105.58 -1.0%

rose to its highest level this fiscal at 7.81% in Sept. India srupee fell on speculation importers stepped up dollar purchasesto pay month-end bills and after the RBI left repo rate unchangedin its half-yearly monetary policy.

Japanese Yen fell by 2.2% against the dollar in October 2012. Yen fell against other major currencies amidwarning signs that Tokyo could take further steps to weaken its currency. The dollar climbed against thewarning signs that Tokyo could take further steps to weaken its currency. The dollar climbed against theyen after data showed the U.S. unemployment rate last month fell to nearly a four-year low and the economycreated jobs that were slightly above expectations. The yen dropped in the longest streak in seven years asa report showing Japan’s exports fell the most since the 2011 earthquake fueled bets the central bank willadd more stimulus. The yen slipped to the weakest level in almost two months versus the dollar as speculationthat the Bank of Japan will boost stimulus measures sapped demand for the nation’s assets as a haven. Japan’scurrency was set for its longest run of declines against the dollar since April 2011 as Treasury two year yields


currency was set for its longest run of declines against the dollar since April 2011 as Treasury two-year yieldsreached the highest in two months relative to Japanese peers.

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Indonesian rupiah fell by 1.1% last month and weakened to a three-year low after data showed exportscontracted for a sixth month, adding to concern the current-account deficit will widen from a record. Therupiah declined its weakest level since October 2009 on speculation that the importers will step up dollarpurchases to meet month-end payments.

The Brazilian Real fell 0.6% in Oct 2011. The Brazilian real closed weaker to dollar after the country's centralbank sold reverse-swap contracts to deter the currency appreciation & also as investors weighed prospects fordollar inflows amid signs of continued strong inflation locally & renewed risk aversion in markets abroad.

Euro appreciated by 0.6% and was headed for its third straight month of gains as U.S. stocks rose after a two-day closure for Hurricane Sandy, denting safe-haven demand for the U.S. currency The euro notched highagainst the dollar after the head of the European Central Bank reiterated a commitment to preserve the euroand after a report showed that the U.S. unemployment rate dropped to its lowest level in nearly four years,spurring investors out of the safe-haven greenback. The euro was already higher, helped by persistent talk Spainmay soon ask for a bailout and tentative signs of improving confidence in the German economy, butspeculation that Germany may not want Spain to wait for help prompted a sharp advance higher in the euro zonecommon currency. The euro rose to a five-month high against the dollar with the single currency helped by gooddemand at a Spanish bond auction. Traders said demand from Middle Eastern and Asian sovereign investors anddemand at a Spanish bond auction. Traders said demand from Middle Eastern and Asian sovereign investors anda supranational also buoyed the euro.


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Comparison of Equity Returns in various markets - MSCI Indices in US$ terms

MSCI Index Last

Monthly

Returns

3 Month

Returns

YTD

Returns

1 Year

Returns MSCI Index Last

Monthly

Returns

3 Month

Returns

YTD

Returns

1 Year

Returns

Emerging Markets Developed Markets

BRIC 282.1 0.8% 6.0% 5.3% -5.4% EUROPE 1,374.2 1.4% 8.5% 9.5% 2.5%

EM (EMERGING MARKETS) 995.3 -0.7% 4.5% 8.6% 0.0% G7 INDEX 1,133.1 -1.2% 3.6% 9.9% 7.6%

EM ASIA 420.9 -0.5% 5.6% 11.1% 2.4% WORLD 1,301.5 -0.8% 4.1% 10.1% 6.9%

EM EUROPE 443.9 -0.5% 6.5% 12.3% -1.5%

EM EUROPE & MIDDLE EAST 377.3 -0.5% 6.5% 12.3% -1.5% GREECE 73.8 16.7% 17.4% -9.6% -31.6%

EM LATIN AMERICA 3,647.3 -0.8% 2.3% 1.3% -6.8% AUSTRIA 1,032.0 6.1% 14.5% 9.9% -2.1%

PORTUGAL 86.8 3.4% 20.2% -6.8% -19.3%PORTUGAL 86.8 3.4% 20.2% 6.8% 19.3%

CHINA 58.9 5.7% 8.5% 11.4% 4.6% ITALY 241.2 3.3% 16.7% 2.8% -9.2%

INDIA 412.2 -3.9% 11.2% 18.8% -6.2% NETHERLANDS 1,895.2 3.3% 8.5% 10.8% 4.2%

INDONESIA 903.5 2.6% 4.1% 4.3% 1.5% FRANCE 1,316.0 2.7% 9.7% 9.3% -1.0%

KOREA 397.7 -2.9% 2.9% 11.3% 2.5% AUSTRALIA 850.0 2.6% 3.9% 12.9% 2.7%

MALAYSIA 483.8 2.4% 3.8% 10.0% 8.5% SWITZERLAND 3,967.4 2.6% 8.2% 11.4% 7.0%

PHILIPPINES 450.6 2.8% 4.8% 32.8% 29.0% SINGAPORE 4,033.1 -1.6% -0.1% 21.2% 7.9%

TAIWAN 251.5 -6.1% 2.6% 4.9% -2.2% JAPAN 2,054.0 -1.9% -1.3% -1.8% -5.5%

THAILAND 390.7 -1.7% 5.3% 21.5% 20.5% USA 1,347.4 -1.9% 2.5% 12.3% 12.6%

BRAZIL 2,629.8 -1.5% 1.4% -7.0% -15.7% SWEDEN 6,250.7 -2.4% 1.5% 10.4% 3.6%

CHILE 2,378.9 -1.6% -0.2% 4.9% -4.4%

COLOMBIA 1,282.7 5.9% 6.1% 24.1% 18.6% Frontier Markets

MEXICO 6,733.0 -0.3% 4.0% 20.2% 15.2% FM (FRONTIER MARKETS) 472.7 -0.8% 5.2% 1.2% -3.1%

PERU 1 519 3 0 0% 6 7% 9 8% 6 4%PERU 1,519.3 0.0% 6.7% 9.8% 6.4%

CZECH REPUBLIC 449.5 -0.3% 11.2% 0.5% -7.8% SRI LANKA 197.4 -10.1% 11.6% -3.5% -15.4%

HUNGARY 551.0 5.7% 16.5% 27.3% 10.1% UKRAINE 96.1 -8.0% -13.3% -45.8% -50.9%

POLAND 790.2 -2.3% 10.0% 15.4% -4.5% ARGENTINA 1,008.4 -7.4% -5.4% -50.8% -53.9%

RUSSIA 764.2 -3.4% 2.6% 3.7% -7.6% JAMAICA 1,018.2 -5.6% -2.2% -23.9% -26.4%

TURKEY 591.7 10.4% 14.9% 49.7% 29.3% SERBIA 201.5 6.2% 12.9% -7.3% -24.6%

EGYPT 689.8 -3.3% 14.8% 56.6% 26.3% ROMANIA 348.6 6.3% 12.6% 10.4% -4.2%


MOROCCO 313.0 1.3% -1.5% -16.5% -25.8% GHANA 973.3 11.3% 27.1% 18.0% 13.8%

SOUTH AFRICA 533.8 -3.1% -0.6% 5.5% 3.3% ZIMBABWE 1,262.3 13.4% 23.2% 24.6% 27.5%

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Comparison of Equity Returns in various markets - MSCI Indices in US$ terms

Barring European index, amongst the developed markets, (which ended higher by 1.4%) and BRIC index amongthe emerging markets, (which gained 0.8%), all the other equity indices across the globe ended marginallylower in the month of Oct 2012. Among the Developed Markets G7 & World index ended lower by 1.2% & 0.8%respectively. The frontier markets corrected by 0.8%, while the emerging markets fell by fell by 0.7%, with EM –Latin America underperforming the mostLatin America underperforming the most.

Amongst the constituents of the developed markets, Greece & Australia were the top two gainers, up 16.7% &6.1% respectively during the month. Portugal, Italy, Netherlands, France, Australia & Switzerland also performedwell, rising in the range of 2-4%. However, countries like Sweden, USA, Japan & Singapore underperformed,falling by 2.4%, 1.9%, 1.9% & 1.6% respectively.

G h f d i h h i i d h f l h G ldGreece was the top performer during the month, as investors remained hopeful that Greece would soonreceive a bailout package required to overcome its economic and financial instability. Greek Finance MinisterYannis Stournaras said during the month that Greece had finalized on the labor reforms as part of the austeritymeasures required to receive the bailout package from the ECB. These measures are expected to be brought tothe Greek parliament shortly. According to Stournaras, the Troika, consisting of the European Commission, theECB and the International Monetary Fund, has reached an agreement with Greece over an extension by two

f h d dli b f hi h G d b i i bli d fi i d 3% b 2016years of the deadline before which Greece needs to bring its public deficit under 3% by 2016.

Australia outperformed, as sources say that the Australia’s economy is forecast to grow by 3.3% in 2012 and3% in 2013, despite the continued global turmoil with ongoing instability in Europe & less than favourableconditions in the US. Australia has recently become the 12th largest economy in the world up three places overthe last few years. In the past five years Australia’s economy has surpassed the economies of South Korea,Mexico and now SpainMexico and now Spain.

Sweden was a top loser in the month of Oct, as the economic data released during the month weredisappointing. The trade figures for the month of September were weak. Both exports and imports of goods weredown sharply Y-o-Y (-13% and -12% respectively). Further Swedish consumer sentiment continued to worsen inOctober. Also there are talks that the government borrowing required would be larger than expected over thenext two years. Growth prospects for the coming quarters are bleak. Most indicators have dropped and


y p p g q ppexporters’ expectations on new orders are record low. There are expectations that exports and GDP would mostlikely contract in Q4, in contrast to the Riksbank’s view of some growth in Q4 (+0.2% q/q).

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Japanese market underperformed during the month, as the Japanese manufacturers became more pessimisticas slowdown in China and Europe sapped export demand and pushed the nation closer to an economiccontraction. The quarterly Tankan index for large manufacturers fell in September to minus 3 from minus 1, thefourth negative reading, the Bank of Japan said. In another economic data published during the month, Japan’sall industries activity index rose less-than-expected in September. It rose to a seasonally adjusted 0.1%, from-0.6% in the preceding month. Analysts had expected Japan’s All Industries Activity Index to rise 0.2% last month.6 p g y p p yFurther, Japan's core consumer prices fell for the fifth straight month in the year to September, showing theeconomy remained mired in deflation and keeping the pressure on the central bank to do more to achieve itsinflation target.

Frontier markets reported marginal decline of 0.89% during the month. Sri Lanka, Ukraine, Argentina & Jamaicaunderperformed the most by 10.1%, 8%, 7.4% & 5.6% respectively. However, the index fall was restricted on thep y , , p y ,back of outperformance from markets like Zimbabwe, Ghana, Romania & Serbia.

Sri Lankan stocks slipped during the month on the back of margin calls as the rupee ended firmer. There weremargin calls by brokers and retail investors had to sell their shares (especially Telecom shares) to settlecredit for their earlier transactions. Lack of positive news to boost sentiment is also a reason the market fellsharply during the month. The fall in the market could also be due to profit booking done by the investors, whothought the market was overbought after a sharp rally in the month of September. During the month, Sri Lanka’scentral bank kept policy rates unchanged, as expected, as private sector credit growth has moderatedsufficiently to curb inflationary expectations.

Zimbabwe market was a top performer during the month as the GOLD production jumped 61% to 11140 kg inthe nine months to September 30 this year. Output for 2012 is projected to reach 15000 kg as mines ramp up

$production despite cash constraints. Zimbabwe earned US$1.4 billion from mineral sales for the period toSeptember, according to the Chamber of Mines, which represents most medium and large-scale miners. Earningsfrom gold accounted for over half Zimbabwe's mineral exports in the first nine months of the year. Mineralexports, excluding ferrochrome, diamonds and coal, earned Zimbabwe US$2.01 billion over the same period. Thesector remains at the heart of Zimbabwe's economic activities and generates for exports and createsemployment. It employs about 45000 people and accounts for 50% of the country's foreign currency inflows.


p y p y p p y g yMining contributes about 13% to Zimbabwe's GDP, matching the manufacturing sector's 14% contribution,and could reach 25% by 2020.

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The Emerging Markets ended the month of Oct on a weak note, down 0.7%. EM – Latin America was a top loser,which fell by 0.8%. EM – Asia, EM – Europe and EM – Europe & Middle fell by 0.5% each. However, BRIC indexoutperformed during the month, gaining 0.8%.

BRIC index rise was led by China, which ended higher by 5.7% during the month of Oct. However, the otherconstituents of the index like India, Russia & Brazil all underperformed, rising 3.9%, 3.4% & 1.5% respectively.

China reported strong gains during the month as the economy’s retail sales grew 14.1% Y-o-Y to 14.94 trillionyuan (2.37 trillion U.S. dollars) in the first three quarters 2012. Further, the Industrial production in China rosemore-than-expected in September by 9.2%. The rally continued during the month as the economy’s GDPexpanded 7.4% in the third quarter from a year earlier. China’s economy is performing better than expected,and bottoming will be clear in the fourth quarter. Moreover, HSBC's initial purchasing manager's index forChi j d 49 1 i O f 47 9 h i h Thi i di d i k i f G hChina jumped to 49.1 in Oct from 47.9 the previous month. This indicated a pick up in factory Growth.

The Brazilian market slid to a seven-week low during the month as a drop in commodities dimmed theoutlook for Brazilian producers after disappointing corporate earnings in the U.S. and Europe rekindled concernthe global recovery will falter. The index fall could also be attributed to profit taking as the Bovespa index hasclimbed 9.9% from this year’s low on June 5 as stimulus from central banks around the world eased economic

d b i t t d l i B il b t d t k d d Th i d t d t 15 ticoncern and borrowing costs at a record low in Brazil boosted stock demand. The index trades at 15 timesanalysts’ earnings estimates for the next four quarters, which compares with the ratio of 11.5 times for MSCIInc.’s measure of 21 developing nations’ equities. There are also concerns that Brazil’s economic recovery mayfalter after companies reported earnings that trailed estimates.

Underperformance of EM-Latin America was led by Chile, Brazil & Mexico, which fell by 1.6%, 1.5% & 0.3%ti l H C l bi t f d i i 5 9% d i th th Thi h l d th ll i d trespectively. However, Columbia outperformed, rising 5.9% during the month. This helped the overall index to

protect its losses.

Chile's IPSA select-stock index settled down during the month as retail holding company Cencosud, one of theIPSA's heavyweights, declined sharply after it unveiled plans to launch a capital increase.

Mexican markets fell during the month partly on the back of profit taking and partly by tracking Wall Street


Mexican markets fell during the month partly on the back of profit taking and partly by tracking Wall Streetlower as global construction bellwether Caterpillar cut its 2012 forecast, adding to concerns about slowingglobal growth.

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The Columbia continued its outperformance as the World Bank considers the economy a safer financial betthan some of the world’s largest economies. The economy has continued on a sustained growth path with adecade average annual increase of over 4%. Per Capita GDP has doubled in the last ten years. As per theEconomic Commission report for Latin America and the Caribbean (ECLAC) released during the month, theColombian economy is expected to grow by 4% over the next two years. According to the ECLAC, growthwould be larger than the average Latin American and Caribbean, which is estimated to have a combinedwould be larger than the average Latin American and Caribbean, which is estimated to have a combinedgrowth of 3.2% for 2012.

Among the constituents of EM-Asia, Taiwan and India were the top two losers, which fell by 6.1% & 3.9%respectively during the month. Korea & Thailand also underperformed, down 2.9% & 1.7% respectively. However,the index losses were restricted due to outperformance by China, Philippines, Indonesia & Malaysia, whichgained 5.7%, 2.8%, 2.6% & 2.4% respectively during the month.gained 5.7%, 2.8%, 2.6% & 2.4% respectively during the month.

Taiwan stocks' tepid performance in October was the result of international factors. Taiwan is a relativelysmall economic entity whose gross domestic product is 70% dependent upon exports. Even if overseas marketscough a little, Taiwan gets nervous. Orders for Taiwan's exports returned to growth in September after sixstraight months of declines, buoyed by strong demand for new smartphones and tablets. However, the marketparticipants expect the recovery to be a slow one as the global economy remains fragile.p p p y g y g

Philippines did well during the month, as Moody's upgraded the Philippines' foreign and local currency bondratings from Ba2 to Ba1, saying the ratings outlook is stable. It cited improved economic performance,enhanced medium-term growth prospects and a stable financial system. The economy posted 6.1% growth in firstsemester, up from 4.2% a year earlier. The stock market also rose on continued optimism over China.

EM E d EM E & Middl t d ti th d i th th f O t i l th b k fEM-Europe and EM-Europe & Middle reported negative growth during the month of Oct, mainly on the back ofpoor performance from Russia, Poland & Czech Republic, which fell by 3.4%, 2.3% & 0.3% respectively.However, Turkey & Hungary outperformed, closing higher by 10.4% & 5.7% respectively, thus restricting theindex losses.

Russian economy underperformed as the Crude oil prices fell during the month (trading near three-monthlow) Russia receives about 50% of budget revenue from oil and gas sales The downgrade of Spain's rating and a


low). Russia receives about 50% of budget revenue from oil and gas sales. The downgrade of Spain's rating and apoor start to the US earnings season also had some impact on the Russian market.

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HOME

Turkish market jumped during the month after data showed the current account deficit narrowingsignificantly, stoking expectations of a rating upgrade.

Hungarian assets surged in value as yield-starved investors give Budapest the benefit of the doubt over its long-running plan to secure a backstop loan from the IMF. Comments by Prime Minister Orban that Budapest was"not far" from a deal with the IMF further raised expectations of an agreement that markets believe would make

l d bl f f h deconomic policy more predictable after two years of unorthodox measures.


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Monthly Equity Commentary contd…Outlook going forward

Global Market Outlook

Outcome of US Elections

The US presidential election is drawing the attention of millions of people around the world and the financial

Outlook going forward

markets are also keeping a keen eye on what happens. Markets are expected to be volatile over the coming daysbut could calm down after the election – and if it were a close race the markets would be extremelyunpredictable. While traditional perception suggests markets are more stable under Republican leadership,historical data shows this is not the case – markets under a Democratic president perform better.

If Obama wins in November, and control of Congress remains divided between Democrats in the Senate and, gRepublicans in the House, stocks might dip briefly as a sign of disappointment that Romney's business-friendlypolicies are off the table. But the bigger issue will quickly become the "fiscal cliff" — the huge set of tax hikesand spending cuts due to go into effect at the end of the year, if Congress lets them. The outlook for investorsmay hinge on Obama's ability to compromise. There could be significant upside for stock multiples in a secondObama term if the president tacks to the middle and finds common ground with Republicans in the House.H i d id l i l di i i b t ti h i t d titl t f tHowever, given deep ideological divisions between parties, comprehensive tax and entitlement reform may notbe addressed to the market's satisfaction.

If Romney were to win the presidency and Republicans took complete control of Congress, markets would soarfor two reasons. First, Romney's plans to cut taxes and slash regulations would be seen as a boon for business.Second, single-party control in Washington would make it more likely that Congress and the White House couldreach a comprehensive deal on taxes and spending. (That would be true if Democrats took complete control aswell, although that seems highly unlikely, especially in the House.) But not all is rosy in this scenario. Romneyhas said he wouldn't reappoint Federal Reserve Chairman Ben Bernanke in 2014, when his term expires. Despitesome misgivings about the Fed's aggressive quantitative easing policies, Wall Street has grown comfortable withBernanke's easy-money policies, which the Fed has said it will keep in place until there's convincing evidence ofa strong recovery That has put a floor beneath stock prices and allowed big companies to stockpile cash Given


a strong recovery. That has put a floor beneath stock prices and allowed big companies to stockpile cash. Giventhe market's penchant for liquidity over the past several years, concerns over tighter monetary policy couldcreate a headwind in 2013.

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Historically, election years have generally coincided with favourable markets, particularly when the incumbentparty wins. Wall Street tends to enjoy an upward bounce in the fourth quarter after the election as investorsbreathe a sigh of relief that the long election cycle, which brings an air of uncertainty to the markets, is over.For example, the S&P 500 Index has risen in 12 of the 16 election years since World War II.

Looking at the whole four-year cycle, the post-election year is the worst performing on average, whilst theg y y , p y p g g ,fourth year is usually above average. An assessment of the S&P index's performance in the last four years fitsthis model; in year one, 2008, the S&P lost over 40% of its value and this year it has gained over 30%.

Analysts confirm that a president’s third year tends to be the best, followed by the fourth – or election – yearand these figures have been reasonably consistent over the decades barring the financial crash in 2008.

The next president has the power to appoint three new Fed governors and whoever these three individuals arewill have a bearing on the financial markets for years to come. Additionally, these new governors will have ahand in the central bank’s crucial policymaking. In the short-term, the appointed governors will play a vital partin determining how and at what pace the Fed increases its funds rate. Generally, the members of the centralbank’s decision-making committee are categorised as either hawks – policy advisors with a negative opinion ofinflation and its impact on society and doves policy advisors who promote fiscal policies involving theinflation and its impact on society – and doves – policy advisors who promote fiscal policies involving themaintenance of low interest rates.

US – Fiscal Cliff?After the November 6 elections, Congress and the White House will face tough decisions on tax rates, tax breaksand budget cuts in a convergence of high-stakes deadlines that Federal Reserve Chairman Ben Bernanke dubbed

' i fi l liff ' Th t t U S i i ill b fi di d f th 'fi l liff'a 'massive fiscal cliff.' The most urgent U.S. economic issue will be finding a way down from the 'fiscal cliff'without plunging the U.S. economy over the edge.

The US is in the midst of a fiscal crisis caused by the combination of reduced revenue due to the 2008-09recession and increased expense caused by the 2008 fiscal stimulus bill. Federal debt held by the public hasgrown from US$5 trillion in 2007 to US$11 trillion today. The ratio of debt held by the public to GDP has risenfrom below 40% in 2007 to almost 80% today Without a drastic change in course the CBO predicts that ten


from below 40% in 2007 to almost 80% today. Without a drastic change in course, the CBO predicts that tenyears from now the ratio will climb to 90%, the highest level in postwar history (and utterly inconsistent with theAAA credit rating criteria of Moody’s and S&P).

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Election The “fiscal cliff” is still two months off, but the scheduled blast of tax hikes and spending cuts isalready reverberating through the U.S. economy, hampering growth and, according to a new study, wiping outnearly 1 million jobs this year alone.

The term “fiscal cliff” is Washington shorthand for an array of policies set to take effect in January, suckingmore than US$500 bn out of the economy next year. That includes about US$100 bn in automatic cuts to themore than US$500 bn out of the economy next year. That includes about US$100 bn in automatic cuts to themilitary and federal agencies, adopted by Congress last year as part of a plan to reduce record budget deficits.It also includes about US$400 bn in tax hikes, caused primarily by the expiration of a temporary payroll tax cutand other tax breaks adopted during the George W. Bush administration.

The cliff amounts to the largest spurt of deficit reduction in more than 40 years. But it is also likely to push thefragile economy back into recession, according to the nonpartisan Congressional Budget Office. The CBOg y , g p g gpredicts that a recession would be significant but brief, with unemployment peaking around 9 percent andeconomic growth recovering during the second half of 2013.

Though both Republican and Democratic policy makers have said they will attempt to soften its effect, if leftunresolved the fiscal tightening would be equivalent to roughly 4 per cent of the nation’s gross domestic product.The Congressional Budget Office and economists on Wall Street have said it is likely to lead to recession.g g y

Uncertainty over the so-called U.S. fiscal cliff threatens to cause "some real crazy activity" on markets ifCongress fails to act by the year-end. If Congress cannot reach a deficit-reduction deal by the end of the year, itwill automatically trigger big spending cuts and tax increases in 2013. This "fiscal cliff" would hit the still-recovering U.S. economy hard.

Spanish Economy going from bad to worseSpanish Economy going from bad to worseSpain fell deeper into recession in the third quarter and prices rose sharply in October, piling pressure on thegovernment to revive a paralyzed economy as it stalls over requesting aid. Prime Minister Mariano Rajoy is in nohurry to apply for a politically humiliating financial rescue that would kickstart an ECB bond-buying program andease financing costs. But the worsening economy, along with spreading civil unrest, may force his hand.


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Spain's economy has been shrinking since the third quarter of 2011 (Source: INE)

Spain’s central government must raise 207-billion euros in debt next year, plus a possible additional 20-billioneuros to cover finances of indebted regional governments. Analysts say it may be tough to meet those needswithout external aid The 17 self governing regions have been shut out of debt markets for months and ninewithout external aid. The 17 self-governing regions have been shut out of debt markets for months and ninehave so far tapped a state liquidity line for around 17-billion euros. More could join the queue.

Chinese Economy - Recovery on its way?

Digesting recent economic numbers, financial institutions across the globe have reached a general consensus:China's economy has bottomed out. Third-quarter gross domestic product growth and better-than-expectedChina s economy has bottomed out. Third quarter gross domestic product growth and better than expectedSeptember data suggest economic growth is stabilizing.

China's economy is making a slow, steady recovery from its weakest period of growth in three years, with neworders and output at their highest in months.


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Monthly Equity Commentary contd… id i i h h i d i O b f d i di b d d dFactors Evidence is mounting that the economy revived in October after domestic credit curbs and poor demand

from overseas markets pushed economic growth in the third quarter to its weakest rate since the depths of theglobal financial crisis. The final reading for the HSBC Purchasing Managers' Index rose to 49.5 in October - justshy of the 50-point line that divides accelerating from slowing growth - from 47.9 in September. The reading wasthe highest since February, and deviated more than usual from the October flash. The return of the PMI above50 suggests economic momentum has indeed picked up. It indicates the effect of policy easing may have been

h h dstronger than the consensus expected.

Such a quick recovery for the world's second-largest economy is more than welcome with global growthprospects still restricted by Europe's chronic debt crisis and the looming US fiscal cliff. But caution is stillneeded against potential problems that might affect the country's mid to long-term economic growth.

While the growing manufacturing activity suggests that the worst may be over for the Chinese mainland'sg g g y gg yeconomy, the worsening corporate profitability and increasing nonperforming loans are warning signs that thepath to recovery will be long and bumpy.

Indian Market Outlook

Q2FY13 earnings environment – better than expected

India Inc may not be fully out of the woods, but, a large number of companies are beating analysts' estimatesthis earnings season. The broader market (comprising 658 companies) has seen revenues and earnings grow by14% and 16% y-o-y respectively.

The reading looks much better for blue-chip companies. The net profit of sensex companies, which have comeout with their earnings so far, increased 12% y-o-y, ahead of expectations.

Net profit growth has been the weakest for mid-cap companies (firms with market capitalization betweenUS$250 mn and US$2 bn). Mid-cap companies have reported their net profits advance by 8-9%, much less thanthe broader market. Though all the other segments recorded an increase in revenues in the quarter, micro-capcompanies (market capitalization between US$25 mn and US$50 mn) witnessed a 10% decline in sales.

There doesn’t seem to be any earnings delivery or expectation revisions driving the market near term.


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Monthly Equity Commentary contd… A i P li R f d h i i l i ld d i kAggressive Policy Reforms and their implementation could drive markets

India is expected to register a gradual recovery in growth rate in the next fiscal year helped by big-bang reformsand speeding up of farm growth output on account of base effect.

India's GDP growth has been on a steady decline since June 2011, when it stood at 8%. For the quarter endedJune 30, 2012, Indian economy grew by 5.5%. Inflation levels have also remained higher than the Reserve Bank's, , y g y gcomfort level for quite some time now with wholesale price index (WPI)-based inflation touching a 10-monthhigh level of 7.81% in September.

On October 31, government data showed fiscal deficit at Rs.3.36 lakh crore in the first six months of 2012-13stood at 65.6% of the budget estimates. The government has also raised the fiscal deficit target for the currentfiscal to 5.3% from the Budget estimates of 5.1% of the GDP. If the government is able to implement aggressive

li f i th t b i t ki k t t l fi ld j t ld GDP th l tipolicy reforms in a way that begins to kick start large greenfield projects, we could see GDP growth acceleratingat a faster pace starting from FY2014.

The government's recent reforms include allowing FDI in multi-brand retail, aviation and broadcasting, hikingdiesel price, capping the number of subsidised LPG cylinders, opening up pension sector to foreign investmentand raising the FDI cap in insurance to 49 per cent.

India’s reform momentum was set by the recent increases in diesel prices and divestment announcement inseveral state-owned firms. While these do not directly lead to economic growth, they help generate revenuesand ease the government’s fiscal burden. Next came the increase in the foreign-ownership limit on multi-brandretail establishments. By law, implementation rests on each state, and, so far, only nine states and two unionterritories have indicated approval. While these states make up about 30 percent of the population — a largeenough market given India’s sizable population — many foreign retailers may decide to wait on the sidelinesuntil more states buy into the reform.

Foreign ownership on airlines was also raised, to 49 percent, but a still-minority stake may not entice foreignersto invest in this notoriously unprofitable sector without further reforms. In short, it may be too soon to getexcited about stocks exposed to these sectors. The second wave of reforms has begun with the proposal to alsolift foreign-ownership limits on insurance and pension products.


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Though the recently approved measures have been welcome, the most they have achieved for now is to liftmarket sentiment. After all, foreign direct investments account for only around 5% of all investments in India.Further a lot of these reforms need to be approved by both houses of Parliament. Given the recent heating up oftempers between the ruling coalition and the opposition, approval by the parliament seems a daunting task.

The recent reshuffle of the Union cabinet also signifies the intent of the Govt to accelerate the process ofreform implementation.

For real underlying potential, investors are well advised to turn to areas that may be easier to tackle but wouldhave a bigger, more immediate impact. These include approvals of mining and industrial projects, which haveground to a halt since the end of 2010. The value of started projects is now below those during the 2008-2009financial crisis, and investments have been shockingly low, suggesting that policy inaction is the major stumblingbl kblock.

Stabilising Rupee?

The lack of a rate cut from the central bank threatens to continue a period of consolidation for the rupee,which rallied to a monthly high of 51.32 on Oct. 5, the highest since April, on the back of the government'sfiscal and economic reforms Although few analysts expect the rupee to fall back towards the record low offiscal and economic reforms. Although few analysts expect the rupee to fall back towards the record low of57.32 seen in late June, lack of triggers could lead to range-bound trading until the end of the calendar year.

Though the RBI recently disappointed investors by not easing interest rates, FII inflows in the Indianmarkets may help the Rupee to avoid a sharp depreciation.

The recently announced reforms would reduce the degree of caution towards the Indian Rupee and time hasnow come to be more constructive on the currency, especially in light of the Fed’s latest Quantitative Easing(QE) and calming tail risks in the Eurozone.

The Indian rupee looks set to embark on a steady appreciatory run over the medium term. Current levels areattractive given the currency's depressed valuations and macro pressure could subside in the months ahead.


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HOME

Market to trade in a range of 17,600-19,400 in the month of November

Re-igniting interest with the first phase of reforms in September 2012 (fuel prices, FDI and divestments), thegovernment has fuelled hopes that this is not a false dawn. Despite the political cost, the government hasstepped up the momentum and announced several measures (FDI in insurance, pension, SEB restructuring,raising urea prices, and reducing with-holding tax rates).

Capital markets have cheered this. The Indian Rupee has appreciated 5.7% over the last month and therebybecome the best performing emerging market currency over the period. Equity markets have been flirting with15-month highs and investors have moved from despair to expectancy – expecting a new announcement everyday. For all this, the government deserves a lot of credit. Despite a key ally withdrawing support and politicalrisks rising it has soldiered along. There has clearly been a structural change in policy intent.

Looking at the Indian stock market, it is clear that investors are willing to take exposure to India’s growthpotential, but they have crowded to defensive sectors in view of the economic risks. This has led to extremevaluation levels especially in consumer-staple stocks. In many cases, the premium they command versus theSensex is currently higher than ever before. Their valuation premiums are at risk of being suddenly deflatedshould India begin to address its true reform roadblocks.

We expect the Sensex to trade in a range of 17,600-19,400 in the month of November. While speedy reformimplementation could change the overall sentiments, we don’t see that happening soon. Until then, the marketis likely to be range bound driven first by corporate results and later by outcome of US elections. Developmentsin India on political front and in the Europe on countries like Spain, Greece etc could also impact our marketsduring the month. We expect a lot of stock specific action and reputed companies/managements could keep

i ti i th i t k i NBFC l t id i d IT d FMCG t k ld b i li li htseeing a re-rating in their stock prices. NBFC, select mid sized IT and FMCG stocks could be in limelight.Automobile sector could also be in demand.


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Technical Commentary

The Sensex is in larger degree wave 4 which has started from 19,137.

The construction of wave 4 can be a ‘Zigzag’

If the level of 18,885 is breached then this zigzag will get converted in to a ‘Triangle’. Triangles taking place inwave 4 is a welcome event in Elliott wave analysis.

Till the level of 18,885 is not breached we will continue with our assumption of zigzag. But whenever 4th waveis in progress, triangle is considered as better option.

Time calculations according to the Elliott wave theory.

We have been assuming that wave 4 of some degree is currently going on and when the level of 18,524 gotbreached, we decided that the larger degree wave 4 is unfolding,

According to theory, wave 3 consumed 21 trading sessions and wave 4 had till Nov 02 consumed 19 trading


According to theory, wave 3 consumed 21 trading sessions and wave 4 had till Nov 02 consumed 19 tradingsessions and corrective must consume more time than the impulse waves. Please do remember this is theminimum time requirement of wave 4.

29

Technical Commentary contd…

Price calculations according to the Elliott wave theory.

According to theory, wave 3 must get retraced by atleast 38.2% by wave 4 and this had already be done as theSensex made an intraday low at 18,398 which is marked on the chart above with blue color.

Now whenever the level of 18,398 will be breached, support at 50% of the wave 3 will come in picture andwhich is at 18 191which is at 18,191.

Preferable structure of wave 4 according to the Elliott wave theory.

According to theory wave 2 and wave 4 in any impulse formation must be different from each other in everypossible way i.e. Structure, time, price, retracement.

Wave 2 took 39 trading sessions and wave 4 had so far taken 19 trading sessionsWave 2 took 39 trading sessions and wave 4 had so far taken 19 trading sessions.

Wave 2 was ‘Flat’ and so we don’t expect flat in wave 4.

Wave 2 retraced wave 1 by 55% and so 55% ratio will be avoided by wave 4

Now we know the major rules for wave 4, so in this light we will examine the current situation of wave 4 and tryt d t i f t f th tito determine future course of the action


30

Technical Commentary contd…According to theory ideally wave 4 has got 2 options.

Zigzag

Triangle - wave 4 is the only wave in impulse pattern which can have its construction as a ‘Triangle’.

Now we will examine the current downfall which is going on for last 19 trading sessions, the Sensex made itsg g g ,intermediate top at 19,137(Dark Cloud Cover). There onwards no downward move had been retraced by morethan 61.8%. So the entire structure will fall in the realm of the Zigzag.

We have marked 61.8% of the entire fall from 19,137 to 18,393 on the chart above which comes to 18,853 and italso coincides with 18,885 level which is also 61.8% of the smaller fall from 19,137 to 18,535.

So at this juncture we can say that the structure of wave will be ‘Zigzag’ and if and when the levels of 18 855 isSo at this juncture we can say that the structure of wave will be ‘Zigzag’ and if and when the levels of 18,855 isbreached on the upside then it will get converted in to the triangle. In case the structure is a zigzag, the Sensexwill not breach 18,885 on the upside and make newer lows upto 17,969.

However in case 18,885 is breached upwards, the Sensex could revisit and even breach the recent highs of19,137.


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Technical Commentary - Month Gone By contd…

HOME

In the month of October, the Sensex opened at 18,785 made an intra month high at 19,137 after 3 tradingsessions.

In the next 4 trading sessions the Sensex came down and made an temporary bottom at 18,581 after whichit was moving sideways for 12 trading sessions. The top of of this range was at 18,813 which is marked on thechart above with red horizontal line.

Finally the breakdown took place and this range was broken as the Sensex made an intraday low at 18,393.

F l t 2 t di i thi l f 18 393 t b h d d th S l d th th f N b


For last 2 trading sessions this low of 18,393 was not breached and the Sensex closed the month of Novemberat 18,505.

32

Learning Technical Analysis

Money Management Using The Kelly Criterion

We often hear about the importance of diversifying, but perhaps it's easier said than done. How much money dowe put in each stock? When do we buy or sell those stocks? These are all questions that can be answered bydefining a money management system. Here we look at the Kelly Criterion, one of the many techniques that canbe used to manage your money effectively.

The History

John Kelly, who worked for AT&T's Bell Laboratory, originally developed the Kelly Criterion to assist AT&T withits long distance telephone signal noise issues. Soon after the method was published as "A New Interpretation OfInformation Rate" (1956), however, the gambling community got wind of it and realized its potential as anoptimal betting system in horse racing It enabled gamblers to maximize the size of their bankroll over the longoptimal betting system in horse racing. It enabled gamblers to maximize the size of their bankroll over the longterm. Today, many people use it as a general money management system for not only gambling but alsoinvesting.

The Basics

There are two basic components to the Kelly Criterion:

Win probability - The probability that any given trade you make will return a positive amount.

Win/loss ratio - The total positive trade amounts divided by the total negative trade amounts.

These two factors are then put into Kelly's equation:

Kelly % W [(1 W) / R]Kelly % = W – [(1 – W) / R]

Where:

W = Winning probability

R = Win/loss ratio


33

Learning Technical Analysis contd…

The output is the Kelly percentage, which we examine below.

Putting It to Use

Kelly's system can be put to use by following these simple steps:

Access your last 50-60 trades. You can do this by simply asking your broker, or by checking your recent taxy y p y g y y g yreturns (if you claimed all your trades). If you are a more advanced trader with a developed trading system,then you can simply back test the system and take those results. The Kelly Criterion assumes, however, thatyou trade the same way you traded in the past.

Calculate "W", the winning probability. To do this, divide the number of trades that returned a positive amountby your total number of trades (positive and negative). This number is better as it gets closer to one. Anynumber above 0.50 is good.

Calculate "R," the win/loss ratio. Do this by dividing the average gain of the positive trades by the average lossof the negative trades. You should have a number greater than 1 if your average gains are greater than youraverage losses. A result less than one is manageable as long as the number of losing trades remains small.

Input these numbers into Kelly's equation: K% = W [(1 W) / R]Input these numbers into Kelly s equation: K% = W – [(1 – W) / R].

Record the Kelly percentage that the equation returns.

Interpreting the Results

The percentage (a number less than one) that the equation produces represents the size of the positions youshould be taking For example if the Kelly percentage is 0 05 then you should take a 5% position in each ofshould be taking. For example, if the Kelly percentage is 0.05, then you should take a 5% position in each ofthe equities in your portfolio. This system, in essence, lets you know how much you should diversify.

The system does require some common sense, however. One rule to keep in mind, regardless of what the Kellypercentage may tell you, is to commit no more than 20-25% of your capital to one equity. Allocating any morethan this is carries far more risk than most people should be taking.


34

Learning Technical Analysis contd…

Is It Effective?

This system is based on pure mathematics. However, some people may question whether this math originallydeveloped for telephones is actually effective in the stock market or gambling arenas.

By showing the simulated growth of a given account based on pure mathematics, an equity chart candemonstrate the effectiveness of this system In other words the two variables must be entered correctly anddemonstrate the effectiveness of this system. In other words, the two variables must be entered correctly, andit must be assumed that the investor is able to maintain such performance.

Here we see the activity in 50 simulated trading accounts by means of an equity curve. The average amountwon is the same as the average amount lost. However, the people are able to win 60% of the time. The KellyCriterion then tells them to allocate 19% of their capital to each equity (giving them about five equities). Theresult is a positive return in the long run for all traders (notice some short-term downside however) Theresult is a positive return in the long run for all traders (notice some short term downside, however). Thehighest return was 140% (started at 100, went to 240) over 453 bars. Bars represent the time between trades ortrading system outputs. (See the chart on next slide)


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Learning Technical Analysis contd…HOME

Why Isn't Everyone Making Money?

No money management system is perfect. This system will help you to diversify your portfolio efficiently, butthere are many things that it can't do. It cannot pick winning stocks for you, make sure you continue to tradeconsistently or predict sudden market crashes (although it can lighten the blow).

Also there is always a certain amount of "luck" or randomness in the markets which can alter your returnsAlso, there is always a certain amount of luck or randomness in the markets, which can alter your returns.Consider again the above chart. See how the best person received a 140% return and the worst got less than40%. Both traders used the same system, but randomness and volatility can cause temporary swings in accountvalue.

The Bottom Line

Money management cannot ensure that you always make spectacular returns, but it can help you limit yourlosses and maximize your gains through efficient diversification. The Kelly Criterion is one of many models thatcan be used to help you diversify.


36

Derivatives Commentary

After falling from a high of 5815 in early October, the month saw Nifty trading in a tight range between the5633-5729 levels. The index broke this range towards the end of the month to finally end with losses of 1.47% M-o-M. October’s minor loss comes after hefty gains of 8.5% seen in September, which came on the back ofeconomic reform announcements at home and quantitative easing measures abroad.

In the equity space, the FIIs were reported as strong net buyers of Rs. 9578 cr in Oct 2012 (In Sept, they werenet buyers of Rs. 19978 cr). In the F&O space, the FIIs were net buyers in the Index Futures segment, while theopen interest declined over Sept. This indicates squaring up of short positions taken earlier by them in thesesegment and also the value impact. In the Index options segments, FIIs were net buyers with increase in theopen interest, which indicated more buying of options. In the stock futures segment, FIIs were net sellers, whilethe open interest decreased. This indicated squaring up of long positions.

The Nov series has started on a lighter note compared to the previous series. In terms of value, theNov 2012 series has begun with market wide OI at Rs.96,625crs. Vs. Rs.1,04,572crs. at the beginning of the Oct2012 i I R 82 760 h b i i f h S 2012 i Th l i i i l l i h


2012 series. It was Rs.82,760crs. at the beginning of the Sept 2012 series. The lower participation levels in theNov series (compared to the previous series) indicates that traders are cautious at the current juncture.

37HOME

Derivatives Commentary contd…

Rollovers to the Nov series were largely in line with the previous series. While Nifty rollovers were at 63% Vs.64% during the same time in the previous series, Market wide rollovers were at 83% Vs. 83% the same time in theprevious series. However, the fact that the Nov Futures closed at a hefty premium of nearly 42pts suggestsrollover of long positions.

Coming to stock specific rollovers, highest rollovers were seen in Welcorp, Tata Comm, McDowell and Adaniih l ll ll l l dPorts. The lowest rollovers were seen in Havells, Colpal, Asian Paints and Lupin.

Reflecting the sideways trend in the market in the last one month, the Nifty OI PCR climbed marginally to 1.26from 1.24 at the start of the previous series. Reflecting the range bound price action, Nifty IV dipped to 13.92%from 15.64% the same time in the previous series.

Technically Nifty has bounced from the lows of 5583 after breaking down from the 5633-5729 trading rangeTechnically, Nifty has bounced from the lows of 5583 after breaking down from the 5633 5729 trading range.Further upsides are likely if the Nifty can take out the recent highs of 5690.

Index option activity suggests that traders are expecting the Nifty to trade within the 5600-5900 levels in thecoming month. We say this because the maximum call writing and build up of OI is currently being seen in the5800-5900 call strikes. Maximum put writing and build up is being seen in the 5600 put strikes.

So, it seems that market participants have a bullish bias with the 5600 level acting as a key support to watch.


38

Learning Derivatives Analysis

The Advantages and disadvantages of trading in Options

Many investors have started trading in options, believing them to be sophisticated but difficult to trade. Manymore have had bad initial experiences with options because they were not properly trained in how to usethem. The improper use of options, like that of any powerful tool, can lead to major problems.

These are the main advantages (in no particular order) that options may give an investor With advantages likeThese are the main advantages (in no particular order) that options may give an investor. With advantages likethese, you can see how those who have been using options for a while would be at a loss to explain options’lack of popularity in the past. Let's look into these advantages one by one.

Cost Efficiency

Options have great leveraging power. An investor can obtain an option position that will mimic a stock positionalmost identically, but at a huge cost savings. For example, in order to purchase 200 shares of a Rs.80 stock, aninvestor must pay out Rs.16,000. However, if the investor were to purchase two Rs.20 calls (with each contractrepresenting 100 shares), the total outlay would be only Rs.4,000 (2 contracts X 100 shares/contract X Rs.20market price). The investor would then have an additional Rs.12,000 to use at his or her discretion. Obviously,it is not quite as simple as that. The investor has to pick the right call to purchase in order to mimic the stockposition properly However this strategy known as stock replacement is not only viable but also practical andposition properly. However, this strategy, known as stock replacement, is not only viable but also practical andcost efficient.

Less Risky - Depending on How You Use Them

There are situations in which buying options is riskier than owning equities, but there are also times whenoptions can be used to reduce risk. It really depends on how you use them. Options can be less risky forinvestor because they require less financial commitment than equities, and they can also be less risky due totheir relative imperviousness to the potentially catastrophic effects of gap openings.

Options are the most dependable form of hedge, and this also makes them safer than stocks. When an investorpurchases stock, a stop-loss order is frequently placed to protect the position. The stop order is designed to"stop" losses below a predetermined price identified by the investor. The problem with these orders lies in the

f h d lf d d h h k d b l h l d d


nature of the order itself. A stop order is executed when the stock trades at or below the limit as indicated inthe order.

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Learning Derivatives Analysis contd…

For example, let's say you buy a stock at Rs.50. You do not wish to lose any more than 10% of your investment,so you place a Rs.45 stop order. This order will become a market order to sell once the stock trades at or belowRs.45. This order works during the day, but it may lead to problems at night. Say you go to bed with the stockhaving closed at Rs.51. The next morning, when you wake up and turn on CNBC, you hear that there is breakingnews on your stock. It seems that the company's CEO has been lying about the earnings reports for quite sometime now, and there are also rumor of embezzlement. The stock is indicated to open down around Rs.20. When, pthat happens, Rs.20 will be the fit trade below your stop order's Rs.45 limit price. So, when the stock opens, yousell at Rs.20, locking in a considerable loss. The stop-loss order was not there for you when you needed it most.

Had you purchased a put option for protection, you would not have had to suffer the catastrophic loss. Unlikestop-loss order, options do not shut down when the market closes. They give you insurance 24 hour a day, sevendays a week. This is something that stop order can't do. This is why options are considered a dependable form ofhedging.

Furthermore, as an alternative to purchasing the stock, you could have employed the strategy mentioned above(stock replacement), where you purchase an in-the-money call instead of purchasing the stock. There areoptions that will mimic up to 85% of a stock's performance, but cost one-quarter the price of the stock. If youhad purchased the Rs.45 strike call instead of the stock, your loss would be limited to what you spent on the

i If id R 6 f h i ld h l l h R 6 h R 31 l if doption. If you paid Rs.6 for the option, you would have lost only that Rs.6, not the Rs.31 you lost if you ownedthe stock. The effectiveness of stop order pales in comparison to the natural, full-time stop offered by options.

Higher Potential Returns

You don't need a calculator to figure out that if you spend much less money and make almost the same profit,then you have a higher percentage return. When they pay off, that's what options typically offer to investor.then you have a higher percentage return. When they pay off, that s what options typically offer to investor.

For example, using the scenario from above, let's compare the percentage returns of the stock (purchased forRs.50) and the option (purchased at Rs.6). Let us also say that the option has a delta of 80, meaning that theoption's price will change 80% of the stock's price change. If the stock were to go up Rs.5, your stock positionwould provide a 10% return. Your option position would gain 80% of the stock movement (due to its 80 delta), orRs.4. A Rs.4 gain on a Rs.6 investment amounts to a 67% return - much better than the 10% return on the stock.


gOf course, we must point out that, when the trade doesn't go your way, options can exact a heavy toll - there isthe possibility that you will lose 100% of your investment.

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More Strategic Alternatives

Another major advantage of options is that they offer more investment alternatives. Options are a very flexibletool. There are many ways to use options to recreate other positions. We call these positions synthetics.

Synthetic positions present investor with multiple ways to attain the same investment goals, and this can bevery, very useful. While synthetic positions are considered an advanced option topic, there are many othervery, very useful. While synthetic positions are considered an advanced option topic, there are many otherexamples of how options offer strategic alternatives. For example, many investor use broker that charge amargin when an investor wants to short a stock. The cost of this margin requirement can be quite prohibitive.Other investor use broker that simply do not allow for the shorting of stocks, period. The inability to playthe downside when needed virtually handcuffs investor and forces them into a black and white world while themarket trades in color. But no broker has any rule against investor purchasing puts to play the downside, andthis is a definite benefit of options tradingthis is a definite benefit of options trading.

The use of options also allows the investor to trade not only stock movements, but also the passage of time andmovements in volatility. Most stocks don't have large moves most of the time. Only a few stocks actually movesignificantly, and then they do it rarely. Your ability to take advantage of stagnation could turn out to be thefactor that decides whether your financial goals are reached or whether they remain simply a pipe dream. Onlyoptions offer the strategic alternatives necessary to profit in every type of market.options offer the strategic alternatives necessary to profit in every type of market.

Flexibility –

With options you can trade any type of potential move in the underlying security. Think the shares might doublewithin a week - perhaps you believe the shares will hardly move over the next month. Basically if you have aview, you can use an option strategy to trade it

Directional choice

Obviously related to flexibility. Options are good tools for trading upward and downward and even sidewaysprice movements

Reduce risk


Futures also offer leverage but the potential losses are often open-ended. Many option strategies allow similarleveraged profit potential but with limited risk

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S ll ti i t h th t l d

HOME

Sell options against shares that you already own

This is called a covered call strategy and it's a way to earn extra income from shares you already hold

Option – Disadvantages

Can be high risk - A common misconception with options is that they are high risk. Sure, they can be as high riskas you want but many option strategies are designed to reduce risk Options like any financial product obeyas you want but many option strategies are designed to reduce risk. Options, like any financial product, obeythe risk/reward ration - the higher the potential reward the higher the potential risk and vice versa

Leverage - It's always a double-edged sword. Leverage is great when making money but horrible when losing asit means all losses are multiplied. Most trader who suffer losses in options do so because they use too muchleverage

Complex It's theoretically possible to teach anyone how to buy and sell shares and conduct general business inComplex - It s theoretically possible to teach anyone how to buy and sell shares and conduct general business inthe stock market within a few hours. But this cannot be done with options. A proper, solid but basic optioneducation will take about 1-2 months at a minimum. To be a real pro will take at least 1 year.

Volume - Some options don't trade that much which in turn means there's little liquidity. If no liquidity the bid-offer spreads can be grossly wide, sometimes as much as 10%. With spreads like that it's almost impossible tomake money. As a good rule of thumb, first check out the average daily volume and if it's low don't get involved

h hwith those options

Wasting assets - Normally a disadvantage to most people new to options because they'll often start off buyingthem. But options lose value over time so not only do you have to be right on direction but also with yourtiming. Direction is often not that hard to predict, but timing is a different story altogether

Unlimited risk - If you sell an option short your risk is often unlimited. Short calls have unlimited risks attached(theoretically there's no limit to how high a share can rise). The risk on a short put is limited as the underlyingcannot fall below zero. But if the underlying were to fall sharply the losses on short puts can be horrendous

ConclusionHaving reviewed the primary advantages of options, it's evident why they seem to be the center of attention infinancial circles today. With online brokerages providing direct access to the options markets through theinternet and insanely low commission costs, the average retail investor now has the ability to use the most


internet and insanely low commission costs, the average retail investor now has the ability to use the mostpowerful tool in the investment industry just like the professionals do. So, take the initiative and dedicate sometime to learning how to use options properly. Also look on other side of disadvantages.

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Index Futures Calls

Extract of Calls during October 2012 contd…Index Futures CallsDate B/S Trading Call Entry at Sloss Targets Exit Price / CMP Exit Date % G/L Comments Time Horizon Avg. Entry Abs. Gain/Loss

31-Oct-12 S Bank Nifty Fut 1278-11330 11340.0 11160.0 11340.0 31-Oct-12 -0.4 Stop Loss Triggered 3-5 days 11299.0 -41.0

30-Oct-12 S Nifty Nov Fut 5672-5695 5710.0 5600.0 5640.0 30-Oct-12 0.6 Premature Profit Booked 3-5 days 5672.0 32.0

23-Oct-12 S Bank Nifty Oct Fut 1618-11665 11675.0 11500.0 11541.5 23-Oct-12 0.7 Premature Profit Booked 2 days 11627.0 85.5

17-Oct-12 S Bank Nifty Oct Fut 1375-11425 11435.0 11260.0 11337.2 17-Oct-12 0.5 Premature Profit Booked 3-5 days 11392.5 55.4

8-Oct-12 B Bank Nifty Fut 1380-11435 11375.0 11640.0 11553.0 9-Oct-12 1.2 Premature Profit Booked 2-3 days 11420.0 133.0

5-Oct-12 S Nifty Fut 5797-5810 5830.0 5725.0 5770.3 5-Oct-12 0.5 Premature Profit Booked 1-2 days 5797.3 27.0

Stock and Nifty Options Calls

y y

Date B/S Trading Call Entry at Sloss Targets Exit Price / CMP Exit Date % G/L Comments Time Horizon Avg. Entry Abs. Gain/Loss

30-Oct-12 B Wipro 360 Call Option 7-5 3.0 14.0 9.6 31-Oct-12 36.4 Premature Profit Booked 5 days 7.0 2.6

26-Oct-12 B HDIL Nov 95 Put Option 4.45-3.3 2.8 9.0 5.6 30-Oct-12 28.1 Premature Profit Booked 3-5 days 4.4 1.2

26-Oct-12 B Bank Nifty 11400 Put Option 191-170 165.0 225.0 174.0 29-Oct-12 -5.9 Premature Exit 4 days 185.0 -11.0

f f k d d25-Oct-12 B Nifty Oct 5700 Put Option 2-5 1.8 22.0 17.9 25-Oct-12 297.8 Premature Profit Booked 2-3 days 4.5 13.4

22-Oct-12 B Reliance 820 Nov Call Option 23-15 14.0 40.0 14.0 26-Oct-12 -39.1 Stop Loss Triggered 7 days 23.0 -9.0

18-Oct-12 B Bank Nifty 11500 Call Option 86-70 64.0 130.0 130.0 18-Oct-12 51.2 Target Achieved 4 days 86.0 44.0

16-Oct-12 B Renuka 35 Put Option 0.65-0.45 0.4 1.5 0.9 16-Oct-12 30.8 Premature Profit Booked 3-5 days 0.7 0.2

9-Oct-12 B Reliance Cap 440 Put Option 17.1-10 7.0 30.0 22.0 11-Oct-12 33.3 Premature Profit Booked 3 days 16.5 5.5

9-Oct-12 B SAIL October 85 Put Option 3.3-2.5 2.0 6.5 2.0 12-Oct-12 -36.5 Stop Loss Triggered 3-5 days 3.2 -1.2

4-Oct-12 B JP Associates 85 Put Option 1.5-3.15 1.3 6.0 3.8 5-Oct-12 33.3 Premature Profit Booked 2-3 days 2.9 1.0

3-Oct-12 B Nifty 5800 Call Option 65.8-56 45.0 110.0 94.0 4-Oct-12 46.9 Premature Profit Booked 7 days 64.0 30.0

Trading/BTST/Futures Calls


30-Oct-12 B Tata Metaliks 62.35-60.50 59.5 68 64.3 30-Oct-12 3.1 Premature Profit Booked 3-5 days 62.35 1.95

26-Oct-12 S IDBI Fut 95.8-97.5 98.3 90 93.0 30-Oct-12 3.5 Premature Profit Booked 1-3 days 96.18 3.23

26-Oct-12 B Sanghi India 23-25.5 26.9 32.8 26.9 26-Oct-12 7.0 Raised Stop Loss Triggered 2-3 days 25.15 1.75

23-Oct-12 B DS Kulkarni 74-78.25 73.5 84 73.5 23-Oct-12 -3.0 Stop Loss Triggered 2-3 days 75.8 -2.3p gg y

18-Oct-12 B UB Engg 39.2-38.7 41 43 41.0 18-Oct-12 5.1 Raised Stop Loss Triggered 3-5 days 39 2

17-Oct-12 B Shiv Vani Oil 141.50-139 147.5 155 149.2 17-Oct-12 5.4 Premature Profit Booked 3-5 days 141.5 7.65

16-Oct-12 B Speciality 185-187.5 182 199 182.0 22-Oct-12 -2.3 Stop Loss Triggered 2-5 days 186.25 -4.25

15-Oct-12 B TBZ 142-144 139 160 153.7 15-Oct-12 6.7 Premature Profit Booked 1-3 days 144 9.7

12-Oct-12 B Crest Animation 29.75-29.4 31.6 33 32.7 12-Oct-12 9.9 Premature Profit Booked 3-5 days 29.75 2.95

10-Oct-12 B UB Engg 39.8-39 38.5 43.5 40.9 10-Oct-12 3.0 Premature Profit Booked 3-5 days 39.72 1.18

9-Oct-12 B Shiv Vani Oil 141-139 146.2 155 146.7 9-Oct-12 4.0 Premature Profit Booked 3-5 days 141 5.7

9-Oct-12 B Cox & Kings 139-142.5 138 150 138.0 16-Oct-12 -2.5 Stop Loss Triggered 2-3 days 141.5 -3.5


4-Oct-12 B Venkeys 565-568 552 620 590.0 4-Oct-12 3.9 Premature Profit Booked 1-3 days 568 22

4-Oct-12 B DB Realty 74-77 73.5 84 84.0 5-Oct-12 11.3 Target Achieved 2-3 days 75.5 8.5

3-Oct-12 B HCIL 29-31.55 33 36 33.5 3-Oct-12 6.2 Premature Profit Booked 2-3 days 31.5 1.95

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Extract of Calls during October 2012 contd…

HOME

Positional Calls


11-Oct-12 B United Breweries 128-120 112.0 150.0 139.8 15-Oct-12 9.6 Premature Profit Booked 10 days 127.5 12.3

18-Oct-12 B Nitco 23.4-23 22.5 26.0 26.0 22-Oct-12 11.1 Target Achieved 5 days 23.4 2.6

1-Oct-12 B Praj Industries 48.65-47.75 46.5 54.0 54.0 5-Oct-12 11.1 Target Achieved 1 week 48.6 5.4

18-Oct-12 B Globus Spirits 125.6-123 121.0 138.0 121.0 23-Oct-12 -3.7 Stop Loss Triggered 5 days 125.6 -4.6


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FII & Mutual Fund Flow and indices moves during October 2012

HOME

Week Ended Buy Sold Net Cumulative

4/10/2012 9105.5 7067.0 2038.5 2038.5

11/10/2012 17195.4 10488.7 6706.7 8745.2

18/10/2012 10081.4 9590.0 491.4 9236.6

25/10/2012 6395 0 5606 8 788 2 10024 8

Total FII Inflows/Outflows during the month of October 2012. (All figures in Rs. Cr.)

25/10/2012 6395.0 5606.8 788.2 10024.8

31/10/2012 11475.0 11922.0 -447.0 9577.8

Total 9577.8

Week Ended Buy Sold Net Cumulative

Total MF Inflows/Outflows during the month of October 2012. (All figures in Rs. Cr.)

* Data not available o f 25th October 2012

4/10/2012 1505.1 2240.1 -735.0 -735.0

11/10/2012 2047.2 3074.0 -1026.8 -1761.8

18/10/2012 2412.1 2181.3 230.8 -1531.0

25/10/2012 1368.1 1987.2 -619.1 -2150.1

31/10/2012 1726.3 2096.2 -369.9 -2520.0

T l 9058 8 11578 8 2520 0

BSE Indices 31-Oct-12 28-Sep-12 % chg BSE Indices 31-Oct-12 28-Sep-12 % chg

Sensex 18505.4 18762.7 -1.37 Bankex 12947.3 13138.7 -1.46

Smallcap 6989.2 7017.9 -0.41 Power 1952.1 2048.8 -4.72

Midcap 6566.0 6607.3 -0.63 Capital Goods 10864.0 10957.5 -0.85

Total 9058.8 11578.8 -2520.0

500 7118.8 7206.5 -1.22 Auto 10307.3 10413.2 -1.02

200 2276.2 2307.6 -1.36 Oil & Gas 8355.0 8661.6 -3.54

100 5621.0 5701.4 -1.41 PSU 7104.7 7415.8 -4.20

Realty 1771.6 1847.0 -4.08 IT 5718.7 5922.6 -3.44

Consumer Durables 6937.7 6939.8 -0.03 FMCG 5687.3 5507.4 3.27

M t l 10149 1 10528 2 3 60 H lth 7620 5 7528 4 1 22


Metal 10149.1 10528.2 -3.60 Healthcare 7620.5 7528.4 1.22

45

Gainers & Losers – October 2012

HOME

Top Gainers From F&O Top Losers From F&O

Price Price

28-Sep-12 31-Oct-12

KTKBANK 109.2 135.6 24.2

NHPC 19 3 21 6 11 7

% chg

Price Price

28-Sep-12 31-Oct-12

IRB 152.1 122.1 -19.7

GMRINFRA 24.8 20.1 -19.2

% chg

NHPC 19.3 21.6 11.7

AUROPHARMA 142.0 158.5 11.6

DIVISLAB 1082.6 1199.2 10.8

JPPOWER 35.3 38.4 8.8

FEDERALBNK 447.0 484.6 8.4

SYNDIBANK 108.8 117.7 8.2

CESC 331.7 274.7 -17.2

RCOM 64.8 54.0 -16.7

PANTALOONR 214.0 179.5 -16.1

SCI 59.4 50.7 -14.7

IVRCLINFRA 46.5 39.8 -14.4

Top Gainers From CNX 500 Top Losers From CNX 500

YESBANK 382.1 411.6 7.7

CENTURYTEX 359.2 386.6 7.6

ADANIENT 201.2 215.4 7.1

GUJFLUORO 385.1 329.9 -14.3

LICHSGFIN 281.8 243.1 -13.8

GVKPIL 14.6 12.7 -13.4

p

Price Price

28-Sep-12 31-Oct-12

PENINLAND 47.2 73.1 55.0

WSTCSTPAPR 65.5 91.6 40.0

DBREALTY 71.3 98.1 37.5

% chg

Price Price

28-Sep-12 31-Oct-12

DCHL 10.3 7.5 -27.3

SKUMARSYNF 19.4 15.1 -22.0

STERLINBIO 6.8 5.4 -20.7

% chg

DCMSRMCONS 52.8 71.0 34.5

J&KBANK 932.7 1224.6 31.3

ELECTCAST 20.3 25.6 26.1

KTKBANK 109.2 135.6 24.2

FSL 9.5 11.8 24.2

LITL 15.1 12.1 -19.9

IRB 152.1 122.1 -19.7

MVL_T 3.3 2.7 -19.7

AMTEKAUTO 88.6 71.5 -19.3

GMRINFRA 24.8 20.1 -19.2


ESSAROIL 50.7 62.9 24.1

KCP 33.8 41.2 21.7

MTNL 32.4 26.3 -18.7

TULIP 45.6 37.4 -18.1

46

RETAIL RESEARCH TEAM

Head of Research

Deepak Jasani

Technical/Derivatives A l t

Fundamental Analyst

Mehernosh Panthaki

Sneha VenkatramanAnalyst

Adwait Sapre

Subash Gangadharan

Siddharth Deshpande

Tiju K Samuel

Kushal Sanghrajka

Siji Philipp

Nagaraj Shetti

Production

Mutual Fund Analyst

Dhuraivel Gunasekaran

HDFC Securities Limited, I Think Techno Campus, Bulding –B, ”Alpha”, Office Floor 8, Near Kanjurmarg Station,

Production

Sushma Chavan

, p , g , p , , j g ,Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone (022) 30753400 Fax: (022) 30753435

Disclaimer: This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an

offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may have from time to time positions or options

on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for non-Institutional Clients only.


services for, any company mentioned in this document. This report is intended for non Institutional Clients only.

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