1

ADVICE for the WISE

Newsletter –JANUARY 2014

Economic Update 4

Equity Outlook 8

Debt Outlook 16

Forex 18

Commodities 19

Index Page No.

Contents

Real Estate 20

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From the Desk of CIO

“Advisory services are provided through Karvy Capital having SEBI Registration No: INP000001512. Investments are subject to market risks. Please read the disclaimer on slide 22”

Dear Investors,

The assembly elections during December fuelled an already

strong investor optimism, at least on the institutional side.

Retail investors continued to be net sellers through December.

Debt markets received a positive surprise in the RBI

announcement of status quo on rates. Globally, US economy

threw a positive surprise. Hence even though tapering finally

began, the markets around the world reacted to it rather

calmly.

Going into 2014, the economic outlook remains confusing.

With food inflation getting entrenched and WPI inflation also

refusing to stay down, monetary policy easing seems rather

far. The pause in rate hike may not last long if inflation

continues at current levels. On the positive side, the trade

balance seems to have adjusted towards a better level on the

back of a depreciated Rupee. The currency instability is at

least reduced for now, thus eliminating the need for any

firefighting response from RBI and its attendant costs.

Growth below 5% seems to have become an acceptable level.

While the argument that it cant get much worse has some

merit, the overdependence of a revival on significant

improvement in governance after the general election seems

somewhat dangerous. For now though, investors seem to

have already assumed the best on this front.

We believe that growth revival is likely partly due to easing of

tensions globally and domestically (on currency front and the

firefighting thereafter) and partly due to an improvement in

sentiment. The latter might actually be self fulfilling unless we

witness a negative shock of some sort. Especially the

conducive global economic climate might play significant role

in buoying investor sentiment if not necessarily economic

growth.

3

As on 31st Dec 2013

Change over last month

Change over last year

Equity Markets

BSE Sensex 21171 1.8% 9.0%

S&P Nifty 6304 2.1% 6.8%

S&P 500 1848 2.4% 29.6%

Nikkei 225 16291 4.0% 56.7%

Debt Markets

10-yr G-Sec Yield 8.82% 10 bps 77 bps

Call Markets 8.73% 327 bps NA

Fixed Deposit* 9.00% 0 bps 50 bps

Commodity Markets

RICI Index 3534 1.6% (4.5%)

Gold (`/10gm) 29075 (4.7%) (4.5%)

Crude Oil ($/bbl) (As on 26th December)

111.65 0.5% 0.8%

Forex

Markets

Rupee/Dollar 61.90 0.8% (11.5%)

Yen/Dollar 105.33 (2.8%) (18.5%)

Economic Update - Snapshot of Key Markets

10 yr Gsec

Gold

• Indicates SBI one-year FD •New 10 Year benchmark paper(8.15%, 2022 Maturity) was listed in the month of June , the 1 year yield is compared to the earlier benchmark(2021 Maturity)

4

6.8000

7.3000

7.8000

8.3000

8.8000

9.3000

24000 25000 26000 27000 28000 29000 30000 31000 32000 33000 34000

50

52

54

56

58

60

62

64

66

68

70

`/$

75

85

95

105

115

125

135

145

155

165 S & P BSE Sensex CNX Nifty S&P 500 Nikkei 225

US

Europe

Japan

Emerging economies

• The U.S. central bank would reduce its monthly $85 billion bond buying program by $10 billion starting in January.

• The Commerce Department said housing starts jumped 22.7%, the biggest increase since January 1990, to a seasonally adjusted annual rate of 1.09 million units.

• December's service sector PMI rose to 56.0 from 55.9.

Economy Update - Global

• India’s forex reserves rose by $4.4 bn to $295.7 bn the highest level since April due to foreign institutional inflows into the equity markets.

• India's industrial production contracted for the first time in four months with a 1.8% slump in October.

• Annual consumer inflation in China unexpectedly slowed to 3% in November from an eight-month high of 3.2%.

5

• Irish government bonds are close to marking their second year as the euro zone's top-performing debt, giving a 11.7% year-to-date returns.

• Britain's services PMI fell to a still very strong 60.0, its fifth highest reading since December 2006.

• Austria's 2013 budget envisioned a nominal 2.3% deficit, due to higher-than-expected tax revenue and one-off income from a mobile frequency auction.

• Japan’s 10-year yield was up 2 basis points at 0.71%, its highest level since 18th Sept 2013.

• Japan's output of rolled copper product rose to 67,751 tonnes in November on a seasonally adjusted basis, up 9.6% from a year earlier.

• Japan's general budget deficit is estimated at 9.5% of GDP in calendar 2013, among the worst in the developed world.

Economy Outlook - Domestic

• Q2FY14 GDP growth improved to 4.8% YoY as compared to 4.4%

in the previous quarter leading to growth of 4.6% in first half of

this fiscal. Strong agriculture sector growth and meager

improvement in industrial sector aided in pushing the growth in

the economy in the second quarter. While growth in services

sector continued to slow down.

• GDP at Market Price which had trended below GDP at Factor Cost

for five consecutive quarters rose above FC at 5.7% as subsidies

dropped in second quarter as compared to previous year.

• Agriculture growth rose to 4.6 per cent during July-September

from 2.7 per cent in April-June; the growth for the first half of

2013-14 for the farm sector, according to the data released, is 3.6

per cent. The agriculture growth achieved in the first half of 2013-

14 is just about the long term average.

• Contribution of Services sector to overall GDP growth in Q2FY14

slowed down further to 76.5% of the GDP. Growth slowed down

sharply to 5.9% YoY from peak growth of 10.9% in Mar’11.

GDP growth

• Oct’13 IIP declined by 1.8% YoY, compared to 2.0% and 8.4%

growth in Sept’13 & Oct’12, respectively. Unexpected positive

performance in capital goods sector mainly led to the divergence

between our estimate and the provisional figure. Continued

slowdown was witnessed in Consumer Durables sector which

contributed significantly to the sluggish growth.

• The cumulative growth of the industrial production for the April-

October period year-on-year was at a standstill from a growth of

about 1.2 percent in the corresponding period of last fiscal.

• The headline figure for Jul’13 IIP has been revised downwards by 17

bps to 2.6% YoY on back of 1.1% decline in basic metals.

IIP

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6.9

6.1

5.3 5.5 5.3

4.5 4.8

4.4 4.8

4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Oct 12

Nov 12

Dec 12

Jan 13

Feb 13

Mar 13

Apr 13

May 13

Jun 13

Jul 13

Aug 13

Sep 13

Oct 13

Economic Outlook - Domestic

As on Nov 2013 Bank credits grew by 14.2% on a Y-o-Y basis

which is about 2.8% lower than the growth witnessed in Nov

2012. Aggregate deposits on a Y-o-Y basis grew at 16.1%, viz-a

viz a growth of 12.8% in Nov 2012.

On 18th Dec, RBI adopted a wait and watch approach and

retained its key operative rates; RBI maintained Repo rate at

7.75% consequently Reserve Repo rate stands at 6.75% and MSF

stands at 8.75%. Policy document clearly focused on cooling off

of Inflationary expectations in Dec’13. RBI is expecting food

inflation especially vegetable prices both at retail level and

wholesale level to come off from the current peak. However,

even with the prices of food & beverages crashing sharply, WPI

would still remain above 6.0% and CPI would stay above 9.0%

which is above RBI’s comfort zone.

Headline WPI spiked unexpectedly to 7.52% YoY in Nov’13, vis-à-vis reading of 7.00% in Oct’13. The prices have risen across the segments in the month, while food inflation in particular contributed significantly to the headline figure.

Due to expected revision in Electricity index for Sep’13, WPI for that month has been revised upwards sharply by 56 bps to 7.05% YoY. The average WPI for Apr-Nov’13 is higher at 6.12% YoY as compared to 7.60% in the year-ago period. Core Inflation although remained low at 2.63% YoY in Nov’13 is slightly higher as compared to 2.58% in Oct’13.

Headline CPI spiked to 11.24% YoY in Nov’13, sharpest increase in the entire series, as compared to 10.17% in Oct’13. The gap between CPI and WPI inflation has narrowed down to 3.72% from the peak of 4.74% in Mar’13 mainly due to sharp rise in WPI Inflation.

While on MoM basis, CPI index expanded by 138bps. Nearly 65.00% of the increase in general price level was contributed by Food Inflation, which continued to remain elevated at 14.45%.

Growth in credit & deposits of SCBs

* End of period figures 7

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

8.00% Wholesale Price Index

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0% Bank Credit Aggregate Deposits

Equity Outlook: 2014: A new beginning!

The past year turned out to be quite constructive for Indian equity. Markets made fresh life time highs on the back of improving

domestic macros, supportive global equity and expected governance improvement in India after next general elections. Sensex crossed

the level of 21,200 after a gap of almost six years. FII reaffirmed their commitment towards Indian equities with more than 20 billion

dollars invested in 2013.

We see 2014 bringing a new bull cycle into existence. A good monsoon, strong export sector, continued recovery in US & a stable Euro

area are significant positives for equity markets. With domestic macro-economic data also on the mend, we are aggressive buyers of

Indian equity. We have a year end sensex target of 24,800.

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16000

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20000

22000

31

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-07

30

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1

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30

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r-1

2

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l-1

2

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-12

31

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-13

30

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r-1

3

31

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l-1

3

31

-Oct

-13

BSE SENSEX

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Elections are good for Indian Equity!

Indian equity markets have tended to move up going into the general elections. The average return of Nifty in the six month period

going into the general elections has been 17.6% in the post liberalization era.

The recent opinion polls indicate support building up for Gujarat Chief Minister Narendra Modi led National Democratic Alliance

(NDA). There have been several concerns about governance and populist schemes in the last few years and markets are getting

excited about prospects of a better government emerging from the next election. We would expect a bigger rally building up going

into the election.

2.7% 4.5%

9.0%

0.2%

-8.6%

9.0%

2.8%

11.4%

5.9% 3.2%

12.0%

-10.2%

28.9%

8.5%

22.8%

13.7%

-6.3%

36.0%

8.7%

30.6%

17.6%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

20-Jun-91 12-May-96 3-Mar-98 6-Oct-99 13-May-04 16-May-09 Average

1 Month 3 Months 6 Months

Global growth outlook remains supportive of equity. In their recent meeting, US Federal Reserve has

started the tapering of their bond buying program as unemployment rates have hit a five year low. US GDP

growth rate in last quarter was an impressive 4.1% underscoring a strong macroeconomic recovery.

The tough measures to ensure financial discipline in the peripheral eurozone area in the last few years

have began to show results. European economies have seen rebound in growth with several countries

coming out of recession. We expect this macroeconomic recovery in the Euro area to get stronger in the

next few quarters.

Japan is showing clear signs of coming out of a five year deflationary trend. GDP growth has been strong

with yen weakness benefitting the exporters. Fresh monetary stimulus and labour reforms will make the

recovery stronger.

The strong growth momentum will help sustain an upwards bias in developed and Emerging market

equities. The revival in global risk appetite has resulted in fresh FII inflows into emerging market equities

with India turning out to be a big beneficiary. India has been one of the top performing equity markets

since the middle of September with fresh equity inflows of 8 billion dollars.

10

Global Macro Outlook

RBI Governor surprised the market by keeping repo rate unchanged against the consensus expectations of a

25bps increase in repo rate in the recent policy statement. Despite the inflation data for last month delivering

a negative surprise, RBI has decided to hold rates at current levels. Governor believes and we agree that the

recent spike in inflation has been caused by food and vegetable prices which is expected to reverse in the

coming months.

Considering the fragile economic environment, any further increase in interest rates can derail the nascent

economic recovery .

The emphasis on core CPI as an inflation metric as compared to WPI is expected to continue. We expects CPI

to average around 8-9% level for next year months thus ruling out any monetary easing in the first half.

However, core CPI should moderate to 7% which is within the tolerance limit of RBI.

We expect, at most, a 25bps rate hike in first half of 2014 with rates remaining largely stable till the time

inflation starts cooling off. The second half of the year should see interest rates coming off which would be

beneficial to interest rate sensitive sectors like banking, real estate and infrastructure.

11

Monetary Policy

GDP growth in the last two quarters has remained below 5%. The forecast for FY14 GDP growth has been cut

from 5.5% to 5% by RBI. We believe that growth in the next two quarters will improve due to strengthening

export growth and expected pick-up in agriculture.

Revival of large stalled projects cleared by the Cabinet Committee on Investments will give a boost to capital

formation activity. There are several large projects like Delhi Mumbai Industrial corridor which are progressing

well. Approvals have also been given recently to several large Oil & Gas and power projects. This would help

the Capex cycle in the country which can accelerate the growth rate.

We would expect a GDP growth of 6% in FY15 and believe that economy will see a revival of growth and

earnings cycle. The agriculture and services sector continue to show strong traction and gradually even

manufacturing sector should pick-up as consumer demand revives.

A real GDP growth of 6% along with Inflation of around 7% should lead to a nominal GDP growth of 13%

leading to earnings growth of around 13-16%.

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Macroeconomic Forecast

Corporate earnings growth has started to recover since the last quarter. Sensex earnings growth has improved

from 5% in FY13 to about 10% in FY14 on the back of INR depreciation. For FY15, we would expect a Sensex EPS

growth around of 15%.

We arrive at a year end sensex target of 24,800 based on 16 times FY15 earnings. This gives a 18% upside from

the current market levels.

While Sensex has made fresh life time highs, the performance of various sectors have been quite divergent.

Pharma, IT and Auto have been best performers in the last six years, while Banking, Oil & Gas, Capital Goods

and Metals have been worst performers. We expect this trend to start to reverse going forward.

With interest rates not expected to increase a lot, we have turned positive on interest rate sensitive sectors like

banks and automobiles. Public sector banks are trading at quite cheap valuations and we expect significant

outperformance from that space in the next two to three years. We expect export oriented sectors like IT to

continue to benefit from the significant rupee depreciation seen this year. Telecom is another sector which

might deliver strong earnings due to return of pricing power & reduction in competitive intensity.

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Sensex Target

Sector Stance Remarks

Healthcare Overweight

We believe in the large sized opportunity presented by Pharma sector in India. India’s strength in

generics is difficult to replicate due to quality and quantity of available skilled manpower. With the

developed world keen to cut healthcare costs, and a vast pipeline of drugs going off-patent, Indian

pharma players are at the cusp of rapid growth.

BFSI Overweight

The measures taken to stabilize the rupee have largely been reversed and we expect RBI to pause

in the short term. We expect public sector to significantly outperform due to cheap valuations and

stabilization in asset quality

Telecom Overweight

The regulatory hurdles and competitive pressures seem to be reducing. Incumbents have started

to increase tariffs slowly and pricing power is returning. We believe that consolidation will happen

sooner than expected.

IT/ITES Overweight Demand seems to be coming back in US. North American volume growth has also remained

resilient. With significant rupee depreciation in the last few months, margins will get a boost.

Power Utilities Neutral We like the regulated return charteristic of this space. This space provides steady growth in

earnings and decent return on capital.

Sector View

14

Sector Stance Remarks

Automobiles Neutral We are positive on SUV’s and agricultural vehicles segment due to lesser competition and higher

pricing power.

FMCG Neutral

We like the secular consumption theme. We prefer “discretionary consumption” beneficiaries such

as Cigarettes, IT hardware, durables and branded garments, as the growth in this segment will be

disproportionately higher vis-à-vis the increase in disposable incomes.

E&C Underweight The significant slowdown in order inflow activity combined with lack of demand has hurt the sector.

It will take some time before capex activity revives

Energy Underweight

With the ongoing price deregulation of diesel, we believe the total subsidy burden on Oil PSU’s will

come down during the course of the year. However, rupee depreciation will reverse most of those

gains.

Metals Underweight Steel companies will benefit because of rupee depreciation. However, commodity demand stays

demand globally due to low capex activity

Cement Underweight Cement industry is facing over capacity issues and lacklustre demand. With regulator taking a

strong view against pricing discipline, the profits of the sector are expected to stay muted.

Sector View

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Debt Outlook

• The 10 yr g-sec closed the month at 8.82% which is 10 bps higher than the last month’s close of 8.72%. • This year saw substantial volatility in the Indian bond markets. First, a large foreign institutional investor (FII)-buying triggered

rally in April followed by an equally swift FII sell-off and outflow on the back of US Federal Reserve Governor's comments on tapering in May. This had a dramatic effect on not only bond yields which moved from a low of 7.11 per cent to 7.99 per cent in these two months, but also on the currency.

• This volatility was followed by another round of sharp interest rate movements as the Reserve Bank of India (RBI) put up a strong interest rate defence of the currency and raised the operative rate in the system from 7.25 per cent to 10.25 per cent. Bond prices plummeted and yields went up by 1.7 per cent even as the rupee depreciated by 15 per cent to 68.8 against the dollar.

• G-sec yields saw a lot of movement during the month on account of overall bearish sentiment and policy

makers’ statement. The volumes in G-sec markets were also lack-luster with most investors preferring to stay

away from the market. RBI governor’s comment that the present status quo does not mean a pause in tightening

of interest rates affected the market sentiments.

10-yr G-sec yield Yield curve

(%)

(%)

16

8.00

8.20

8.40

8.60

8.80

9.00

9.20

9.40

9.60

0.0

0

.8

1.5

2

.3

3.0

3

.8

4.5

5

.3

6.0

6

.8

7.5

8

.2

9.0

9

.7

10

.5

11

.2

12

.0

12

.7

13

.5

14

.2

15

.0

15

.7

16

.5

17

.2

18

.0

18

.7

19

.5 6.8000

7.3000

7.8000

8.3000

8.8000

9.3000

Debt Strategy

Outlook Category Details

Long Tenure Debt

Our recommendations regarding long term debt is neither buy nor sell for now. And after the volatility settles Investors could look to add to dynamic and medium to long term income funds over the next few months. Long term debt is likely to see capital appreciation owing to the expected monetary easing. There is lesser probability of rate cuts in the near future and there could be a lot of volatility in the g-sec yields as well. An important point to note is that as commodity prices are cooling down, current account deficit may reduce to some extent. But all this is coupled with uncertainty. We suggest matching risk appetite and investment horizon to fund selection. Hence we recommend that if investing for a period of 2 years or above then long term can be looked upon or else holding/profit booking could be a good idea. Investors who may want to stay invested for the medium term (exiting when prices appreciate) and those who would want to lock in high yields for the longer term can also invest in longer tenure papers/Funds.

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

With the last 25 bps repo rate hike and influence of domestic and global factors in the market, some uncertainty is coupled with the interest rate scenario in the coming quarters, hence, we would suggest to invest in and hold on to current investments in short term debt. Due to liquidity pressures increasing in the market as RBI has a huge borrowing plan, short term yields would remain higher. Short Term funds still have high YTMs (9.5%–10%) providing interesting investment opportunities.

Short Tenure Debt

Credit

17

Forex

• The rupee ended with gains on 31st Dec, but posted a 11% fall in 2013, ending a tough year marked by a descent to a record low and suffering from continued concerns about its outlook next year.

• The Rupee appreciated against all major currencies except Euro in the month of December 2013. It depreciated by 0.45% against the Euro whereas saw an appreciation of 0.8% against the US Dollar, 0.5% against the Great Britain Pound. Also, we witnessed a huge movement in the Rupee against the Japanese Yen where it finished the month by appreciating by 3.39%.

• A narrowing current account deficit has allowed the rupee to withstand the start of reduced bond purchases by the Federal Reserve. The Finance Minister has said that he expects the CAD to be lower at $50 billion for the current FY. The CAD was at $88 billion last year and an improvement in the CAD figures should be good for the Indian currency.

Rupee movement vis-à-vis other currencies (M-o-M) Trade balance and export-import data

• The projected capital account balance for Q3 FY 13 is projected at Rs. 171984 crores along with the Q1 and Q2 being at 88013 Cr and 130409 Cr respectively.

• We expect factors such as higher interest rates to attract more investments to India. Increased limits for investment by FIIs would also help in bringing in more funds though uncertainty in the global markets could prove to be a dampener.

18

Exports during November, 2013 were valued at US $ 24.67bn which was 5.86% higher than the level of US $ 23.25 bn during November, 2012. Imports during November,2013 were valued at US $ 33.83 Bn representing a negative growth of 16.37% over the level of imports valued at US $ 40.45 Bn in November 2012 translating into a trade deficit of $9.22 Bn.

-10000

40000

90000

140000

FY 11 (Q2) FY 11 (Q3) FY 11 (Q4) FY 12 (Q1) FY 12 (Q2) FY 12 (Q3) FY 12 (Q4) FY 13 (Q1)

FY14(Q2)

-25000

-20000

-15000

-10000

-5000

0

-20 -15 -10

-5 0 5

10 15 20

Export(%) Import Trade Balance (mn $)

0.80%

0.05%

-0.45%

3.39%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

USD GBP EURO YEN

Commodities

Precious

Metals

Oil & Gas

The WTI crude dropped to the lowest level in four months as US stockpiles increased and a dollar strength further capping any potential upside. The crude output by OPEC increased to an average 30.621 million barrels and with no fresh triggers to keep oil prices boiling amid ample supplies and increasing inventories, crude oil prices are likely to be stay weaker.

Crude

Gold

After 12 years in succession of a rising gold price, 2013 ended as an unforgettable year for the yellow metal. The investment case for gold largely depends on whether the global central banks achieve a successful exit from the easy monetary policy. If successful, then bears have a party, if not, 2013 sell off is a massive buying opportunity. Some argue that gold price is discounting the falling inflation in the US, paving way for higher real rates - the current US 10-year bond yield offers a real rate of 1.7%. This argument is flawed as rising real rates is a reason to buy gold, not sell it. After pumping in trillions of dollar into system, the Fed has not yet achieved its inflation target and any sign of deflation would ring alarm bells, encouraging them to inject further more trillion dollars into the system. And, if at all there is a rise in inflation, it won’t stop at a targeted 2.5% given the massive liquidity infusion over these years. And, if history is of any guide, it is hard to believe that there will be any successful exit from quantitative easing. We thus favors a structurally bullish view on gold. With a nonstop rise in Dow Jones Index, clearly American equities are over heated and in euphoric phase. Short Equities, Long Gold could be the theme for this year.

19

24000

25000

26000

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33000

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90

95

100

105

110

115

120

125

20

Real Estate Outlook

Asset Classes Tier I Tier II

Residential

Due to a flurry of new launches in the first quarter of the year, most

markets witnessed an increase in the unsold inventory levels even with

relatively steady sales. Consequently, last quarter saw lesser new

launches.

With reduced new launches and steady absorption, the demand supply

gap is expected to reduce over the coming months.

Mid-income residential segment with Rs. 4,000 – 6,000 per sq. ft.

entry pricing with good developers in Pune, Bangalore, NCR and

Mumbai suburbs cane be expected to continue generating good

percentage returns with relatively lower risk.

Demand in Tier II cities is largely driven by the trend

towards nuclear families, increasing disposable

income, rising aspiration to own quality products and

the growth in infrastructure facilities in these cities.

Price appreciation is more concentrated to specific

micro-markets in these cities. Cities like Chandigarh,

Jaipur, Lucknow, Ahmedabad, Bhopal, Nagpur, Patna

and Cochin are expected to perform well.

Commercial/IT

The over-supply in commercial asset class still continues, thereby

dampening the capital values.

While rentals have been seen increasing at a slow pace over the last

couple of months, they still remain lower than the peal values achieved

in the past. In relative terms, Bangalore market continues to

outperform other markets owing primarily to the demand from the IT

industry.

Specific pre-leased properties with good tenant profile and larger lock-

in periods continue to be good investment opportunities over a long-

term horizon.

Lease rentals as well as capital values continue to be

stable at their current levels in the commercial asset

class. Low unit sizes have played an important role in

maintaining the absorption levels in these markets.

Please Note:

Tier I* markets include Mumbai, Delhi & NCR, Bangalore, Pune, Chennai, Hyderabad and Kolkatta

Tier II* markets includes all state capitals other than the Tier I markets

Asset Classes Tier I Tier II

Retail

Capital values as well as lease rentals continue to be stagnant.

The effects of the change in FDI policy to allow 51% foreign

ownership in multi-brand retail and 100% in single-brand retail

are yet to have any effect of the market for retails assets.

Developers continue to defer the construction costs as

absorption continues to be low unsold inventory levels high.

Tier II cities see a preference of hi-street retail as compared to

mall space in Tier I cities. While not much data on these rentals

gets reported, these are expected to have been stagnant.

The mall culture has repeatedly failed in the past n the Tier-2

cities. Whether the FDI in retail can change this phenomenon

can be known with more certainty once the effect of FDI is more

visible in Tier I cities.

Land

Agricultural / non-agricultural lands with connectivity to Tier I

cities and in proximity to upcoming industrial and other

infrastructure developments present good investment

opportunities. Caution should however be exercised due to the

complexities typically involved in land investments.

Land in Tier II and III cities along upcoming / established growth

corridors have seen good percentage appreciation due to low

investment base in such areas.

Real Estate Outlook

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Please Note:

Tier I* markets include Mumbai, Delhi & NCR, Bangalore, Pune, Chennai, Hyderabad and Kolkatta

Tier II* markets includes all state capitals other than the Tier I markets

Disclaimer

The information and views presented here are prepared by Karvy Capital Ltd. The information contained herein is based on our analysis and upon

sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information

and we are not responsible for any loss incurred based upon it. This document is solely for the personal information of the recipient, and must not be

singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. The

investments discussed or recommended here may not be suitable for all investors. Investors must make their own investment decisions based on their

specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information

or analysis mentioned here, investors may please note that neither Karvy Capital Ltd nor any person connected with any associated companies of Karvy

Capital Ltd accepts any liability arising from the use of this information and views mentioned here. Each recipient of this document should make such

investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this

document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment.

Karvy Capital Ltd, its affiliates, directors, its proprietary trading and investment businesses (hereinafter referred to as Karvy) may, from time to time,

make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and

derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a

company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed

on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or

complete and it should not be relied on as such, as this document is for general guidance only.

The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above-mentioned assets from time to time.

Every employee of Karvy and its associated companies are required to disclose their individual stock holdings and details of trades, if any, that they

undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities

till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place

orders only through Karvy Stock Broking Ltd and Karvy Comtrade Ltd.

Any information given in this document on tax are for guidance only, and should not be construed as tax advice. Investors are advised to consult their

respective tax advisers to understand the specific tax incidence applicable to them. We also expect significant changes in the tax laws once the new

Direct Tax Code is in force – this could change the applicability and incidence of tax on equity investments.

Karvy Capital Ltd Operates from within India and is subject to Indian regulations.

Mumbai office Address: 702, Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra (East), off Bandra Kurla Complex, Mumbai 400 051

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