ADVICE for the WISE

Newsletter – March’11

2

Economic Update 4

Equity Outlook 8

Debt Outlook 12

Forex 15

Commodities 16

Index Page No.

Real Estate 19

Dear Investor,

February was a significant, and on the balance positive, month for Indianfinancial markets as well as Indian economy. Equity as well as debtmarkets stabilized through the month and moved upwards towards theend. The budget presented last month was a relatively safe one with nodecisions impacting the investor sentiment in a big way immediately.The impact of the budget on various sectors was also relatively mutedsince there were very few significant and sector specific announcements.At the macroeconomic level, there were a few elements worth cheeringfor – including a sub-5% projection of fiscal deficit, implicit reduction ofsubsidy bill and small but definitive steps to boost investment ininfrastructure. Another positive was that the finance minister refrainedfrom rolling back some stimulus measures such as reduction of servicetax and excise duty. However, on the major reforms front, GST remainsin limbo while DTC has got a due date of 1st April 2012.

A major driver of investor sentiment in recent weeks has been the crudeoil price. Owing to unrest in Libya in particular and Gulf in general, thefears of supply shock in oil pushed Nymex Crude to above $100 perbarrel levels. We believe the fears to be overstated. Libya contributes tono more than 3% of global crude oil supply – an amount smaller thanspare capacity with other oil producers. Also the Libyan situation seemsto have changed for better in the last few days. We believe that thecrude oil prices will soften from here as more clarity emerges on theLibyan situation as well as global oil supply. The impact on Indianeconomy hence will be minimal.

In our last monthly communication we had advised investors tohold off major equity investments owing to our cautious outlook.Since our outlook has changed to positive we advise investors tostart investing in Indian equity markets at current levels. Lastmonth, we had highlighted a high risk-reward strategy for risktaking investors - to bet on a sharp recovery in February usingdeeply out of the money call options. This strategy has workedquite well.

To diversify the equity risk, investors can look beyond Indianshores. With the proposed launch of a NASDAQ ETF this month,investors now have access to US equity markets on NSE platformitself. Hang Seng ETF (for exposure to Hong Kong equity market)has also been available on NSE platform for a while. We advise a10%-20% allocation to international equities within the equityportfolio using these two ETFs.

Another interesting avenue of investment now is the early stageentry into real estate projects of reputed developers. Thiseffectively amounts to lending to the developer against a property– while maintaining an upside on the real estate prices. Clients withsufficient liquidity and risk appetite can drive a good bargain sincemany funding sources for developers have dried up in recent past.

3“Advisory services are provided through Karvy Stock Broking Ltd. (PMS) having SEBI Registration No: INP000001512. Investments are subject to market risks. Please read the disclaimer on slide no.23”

Change over last month

As on Feb 28th 2011

Equity markets

Debt markets

Commodity markets

Forex

markets

Change over last year

* Indicates SBI one-year FD

178235333

1,32710,624

8.13% 6.85%8.25%

4,17620,800

111.4

45.1881.76

(2.75%)(3.14%)

3.2%3.77%

(15 bps)0.5 bps

0 bps

3.9%4.4%

13.4%

(1.7%)(0.4%)

8.48%8.35%

20.17%4.92%

14 bps4.5 bps

250 bps

33.7%30.9%

47%

(1.0%)(8.0%)

BSE SensexS&P NiftyS&P 500 Nikkei 225

10-yr G-Sec YieldCall MarketsFixed Deposit*

RICI IndexGold (`/10gm)Crude Oil ($/bbl)

Rupee/DollarYen/Dollar

4

10 yr Gsec

Gold

6.87

7.27.47.67.8

88.28.4

15000

16000

17000

18000

19000

20000

21000

Fe

b-1

0

Ma

r-1

0

Ap

r-1

0

Ma

y-1

0

Ju

n-1

0

Ju

l-1

0

Au

g-1

0

Se

p-1

0

Oct-

10

Nov-1

0

Dec-1

0

Ja

n-1

1

Fe

b-1

1

44

44.5

45

45.5

46

46.5

47

47.5

48

Fe

b-1

0

Ma

r-1

0

Ap

r-1

0

Ma

y-1

0

Ju

n-1

0

Ju

l-1

0

Au

g-1

0

Se

p-1

0

Oct-

10

No

v-1

0

De

c-1

0

Ja

n-1

1

Fe

b-1

1

`/$

80

90

100

110

120

130

140

Feb

-10

Mar

-10

Ap

r-10

May

-10

Jun

-10

Jul-

10

Au

g-10

Sep

-10

Oct

-10

No

v-10

Dec

-10

Jan

-11

Feb

-11

Sensex NiftyS&P 500 Nikkei 225

5

US

Europe

Japan

Emerging economies

• The HSBC China Manufacturing Purchasing Managers Index, a gauge ofnationwide manufacturing activity, fell to 51.7 in February from 54.5 inJanuary, which was a seven-month low.

• China’s economy grew by 9.7% in 2010 compared to 9.1% in 2009. The retailsales were up 18.5% showing that it is now relying more on domesticconsumption.

• The Conference Board Consumer Confidence Index, which had increased inJanuary, improved further in February. The Index now stands at 70.4, up from64.8 in January. It is now at a three-year high, due to growing optimism aboutthe short-term future.

• US m-o-m unemployment rate worsened to 9.8 per cent in Nov’10.

• Euro-zone PMI is at 58.2 in Feb 11. Growth was broad-based by nation, sectorand industry. Eurozone growth in Feb 11 was the highest since July 2006, ledby marked expansions in Germany and France. Meanwhile, inflationarypressure continued to build, as input costs and output prices rose at fasterrates.

• Unemployment rate in the Euro zone reduced to 9.9% in Jan 11, comparedwith was steady at 10.1% in December 10.

• The Japan Manufacturing Purchasing Managers Index (PMI) rose to aseasonally adjusted 52.9 in February from 51.4 in January reflecting thatmanufacturing grew at the fastest pace since June 2010.

• Japan’s unemployment rate was stagnant at 4.9% in Feb 11.

6

• The GDP growth rate for Q2 FY11 came in at 8.9%backed by a strong growth in services andagricultural output.

• The agriculture sector, which accounts for nearly17% of GDP, rose 4.4% and this offset themoderation manufacturing sector growth, whereproduction went up by 9.8%. The services sectortoo grew at 9.7% during July-September this year,led mainly by finance and real estate as well astrade, hotels, transport and communication

• The Finance ministry is targeting FY11 growth at~8.50% - 8.75% which may be revised upwards. Webelieve the current target is sustainable as weexpect manufacturing and service sectors tocontinue to drive growth in the next few quarters.

IIP monthly data

GDP growth

• Industrial output as measured by the Index ofIndustrial Production (IIP) grew by 1.6% (y-o-y) inDecember ‘10 as compared to an upward revised3.6% in November ’10. The growth was the lowest in20 months.

• Growth in manufacturing, which constitutes around80 per cent of the IIP saw growth of 1.0% ascompared to 2.3% last month.

• The Capital goods sector contracted to 13.7% inDecember compared to 42.9% expansion a year ago.

• We believe that monthly indicators are not a veryefficient way of indicating growth. For instance,lower growth this month could be attributed to ahigher base effect. But, growth will eventuallymoderate out. 4

5

6

7

8

9

10

FY09 (Q3) FY09 (Q4) FY10 (Q1) FY10(Q2) FY10(Q3) FY10(Q4) FY11(Q1) FY11(Q2)

0.0%

5.0%

10.0%

15.0%

20.0%

• Bank credit growth decreased in the month ofJanuary to 23.2% as compared to 26.6% in themonth of December 2010.

• Growth of credit demand and tight liquidity has putpressure on the banks to raise their deposit rates,hence shrinking their margins. The RBI has beenintervening to provide adequate liquidity and moresuch interventions may be seen in the near future.

• We expect credit growth to settle at ~20% levels inthe coming quarters on the back of improvingbusiness confidence and decline in risk aversion onthe part of banks.

• Inflation as measured by WPI stood at 8.23% (y-o-y) for the month of January -11 as comparedto 8.43% during December 10. These figures arebased on the new base year and WPI list. Theincrease is due to the high food and fuelinflation.

• We expect WPI inflation numbers to moderatein m-o-m inflation numbers due to the expecteddecrease in food inflation and the monetarytightening stance by RBI, but increasing fuelprices may be a cause of worry.

Growth in credit & deposits of SCBs

7

Wholesale Price Index

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Jan

-10

Feb

-10

Mar

-10

Ap

r-1

0

May

-10

Jun

-10

Jul-

10

Au

g-1

0

Sep

-10

Oct

-10

No

v-1

0

Dec

-10

Jan

-11

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10

Bank Credit Aggregate Deposits

8

February turned out to be another tough month for Indian equity markets. The broader markets were down more than 3%. The fall was mainly led by a recent spike in crude oil prices, with nymex crude closing at US$100/bbl. Foreign institutional investors (FIIs) continued to be net sellers of about $0.4 bn worth of equities in February. Federal budget was presented on 28th which was received cautiously by the market.

The biggest concern that has emerged in the last month has been a sharp spike in crude oil prices. Nymex crude saw sharp jump of more than ten dollars a barrel due to continued unrest in Middle East and North African countries, especially Libya.

Libya, which produces around 3% of global crude output, is witnessing increased fighting between the regime of Col. Gaddafi and the rebels. The governments across the Middle East and North Africa are under pressure and face surging demands for political, economic and social reform. Egypt, Tunisia, Yemen, Jordan, Bahrain and Iran are the other countries impacted. This could lead of disruption of crude supply lines. India remains highly vulnerable to any continued oil price shock. The prevailing high inflation levels limit the capability of the government to pass on the hike to end consumers. In the absence of a price hike, this will lead to further increase in fiscal deficit and will postpone the consolidation of the fiscal.

Prime Minister Manmohan Singh addressed a press conference during which he answered various questions about the 2G scam and its fallout. Parliament resumed for the budget session after the opposition demand for JPC in 2G scam was expected. The politicalstalemate seems to be easing and government seems keen to press ahead with key reforms like GST and Direct tax code.

$70.00

$75.00

$80.00

$85.00

$90.00

$95.00

$100.00

5-Nov-10 5-Dec-10 5-Jan-11 5-Feb-11

Nymex crude price in last four months

Budget was tabled on 28th February in Lok Sabha. Some of the keypositives were:

- Fiscal deficit target of 4.6% for Fy12 down from 5.1% in Fy11

- No increase in allocation of populist schemes like NREGA

- Service tax and excise duties maintained at 10%

- Surcharge reduced, hence lower corporate tax

- Foreign entities allowed to invest in Indian MF

9

• After a year of record investments into Indian Equities, FIIshave pulled out ~9,000 Cr. In 2011. In the month of Feb.,they pulled out ` 4,585 Cr. This was prompted byimproving global conditions and uncertainties in the Indianmarkets due to factors like Inflation, Liquidity etc.

• Mutual Funds invested around ` 2025 Cr. in the month ofFebruary.

FII & MF data

The budget proposals don’t seem to be having a very material impact on various sectors as most direct and indirect taxes have been left

unchanged. The fiscal deficit target looks ambitious and would be difficult to meet without significant price increases for petroleum products and

fertilizers. There was no announcement of any reforms in Insurance and Retail spaces, which was a disappointment. Overall, budget looks good for

a fiscal consolidation perspective provided the government is able to keep the expenditure within the budgeted numbers.

With food price inflation easing in mid-February following a drop in prices of vegetables and milk, inflation may start to come down. We would

expect WPI inflation to come down to 7% by end march. That should ease the pressure on RBI to increase interest rates substantially. We would

expect a further hike of 25-50 bps when RBI next meets in March with a total hike of 75 to 100 bps for FY12. This view would change if

there is any big spike in retail fuel prices led by continued upside to global crude prices.

The market seems to be trading at reasonable valuations of around 14 times based on FY12 earnings. Further clarity on valuations will

emerge once the Q4 results start coming in from May onwards. We would wait for Q4 results to see whether the slowdown in earnings

growth has been fully priced in. We believe that global events, especially crude prices need to be monitored carefully before increasing

allocation to Indian equities. We continue to like sectors with strong balance sheets, growth visibility & good corporate governance and

have maintained equal weight position on Financials, Consumer Discretionary and Pharma sectors.

-15000.0

-10000.0

-5000.0

0.0

5000.0

10000.0

15000.0

20000.0

25000.0 FII MF

10

Sector Stance Remarks

HealthcareHighly

Overweight

We believe in a 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. Here, we have taken exposure to medium-sized, non-

index ideas while trying to play on the opportunity in Generics and CRAMS.

E&C Overweight

The USD 1 trillion Infra opportunity is hard to ignore. Here, we have carefully taken Power sector as

our dominant bet over other sub sectors such as ports, roads and telecom infrastructure, because of

favorable economics under PPP model. Within power, we focus on the engineering companies over

utilities, T&D and other infrastructure owners because of their superior profitability and better

competitive dynamics.

BFSI Overweight

Financial sector is undeniably the lubricant for economic growth. Whether the growth comes from

consumption or investments, credit growth is inevitable. Being a well regulated sector, BFSI in India

has good asset quality and capital adequacy ratios. This, when juxtaposed to the growth opportunity

available makes an attractive long term opportunity.

FMCG Neutral

The exposure is in “discretionary consumption” beneficiaries such as Paints and branded food, as the

growth in this segment will disproportionately higher vis-à-vis the increase in disposable incomes. This

also provides a defensive posture to the portfolio.

Telecom Neutral

Despite the regulatory hurdles, competitive pressures and leverage we believe in the mammoth

opportunity here, largely because of the continuing under-penetration of voice in rural markets and

huge demand for data services in urban markets. 3G & BWA will make sure the revenues grow at

reasonable pace. Discretionary consumption again.

11

Sector Stance Remarks

IT/ITES Underweight

Rich valuations, maturing growth and the menace of appreciating Rupee makes us little cautious

here. We have chosen to be with the bellwether stock here and believe we have better sectors to

look at.

Automobiles Underweight

We believe in the growth prospects here but raw material prices and raging competition

indicates issues. The rich valuations don’t help either. We have taken a position in the

commercial vehicle segment as things are looking much better there.

Energy Underweight

Through a single company, we have taken a large-sized exposure to refinery and natural gas

exploration sector. The regulatory cap on RoE does not allow a vast value creation opportunity in

the infrastructure owning companies. We have also purposely tried to stay away from PSUs, due

to issues of cross subsidization distorting the underlying economics of oil exploration and refinery

businesses.

Metals UnderweightIndia is not completely isolated from global slowdown. Commodity prices are an international

issue. We have chosen to stay away with a cautious view to the global commodity cycle.

Cement NegativeCement demand will certainly grow over the next three years. But the issue is on the supply side.

We do see an oversupply situation for the next 3-4 quarters.

Power Utilities Negative

We like power sector but believe that greater value will be created by engineering services

providers. Utilities may be a more defensive play, but we have been defensive enough for the

time being.

12

• The benchmark 10 yr G-sec yield decreasedfrom 8.15% in the month of January ‘11 to closeat around 8.00% in February ‘11.

• With no respite from the high inflation in spiteof monetary tightening, it is possible that RBImay take a stand that the monetary tightening isunlikely to bring down food inflation in a directmanner.

10-yr G-sec yield

Yield curve

• We expect yields at the longer end of the yieldcurve to remain stable. High inflation, monetarytightening and rising credit growth will keep theyields at the longer end range bound.

• After the rate hike by RBI in Jan, the 10 year GSec yields are trading around 8.0% from 8.15levels in Jan 2011. If the inflation continues to behigh, there may be another increase in theinterest rates by March but the yields willstabilize around 7.5 – 8.5% levels by year end.

(%)

6.8

7

7.2

7.4

7.6

7.8

8

8.2

8.4

7.0

7.5

8.0

8.5

9.0

9.5

0.0

0.9

1.9

2.8

3.7

4.6

5.5

6.5

7.4

8.3

9.2

10.1

11.1

12.0

12.9

13.8

14.7

15.7

16.6

17.5

18.4

19.4

OutlookCategory Details

Long Tenure Debt

With tight liquidity and inflationary pressure being high, weexpect more rate hikes in the current year. As the inflationarypressure begins to settle down, these may be attractiveinvestments but currently, we would recommend staying out ofthe longer term investments.

Positive economic climate has reduced credit risks without acommensurate decrease in credit spreads. Some AA and selectA rated securities are very attractive at the current yields. Asimilar trend can be seen in the Fixed Deposits also. Tightliquidity in the system has also contributed to widening of thespreads making entry at current levels attractive.

13

We recommend short term bond funds with a 6-12 monthinvestment horizon as we expect them to deliver superiorreturns due to high YTM. We have seen the short term yieldsharden due to reduced liquidity in the market andconsecutive rate hikes prompted by inflationary pressures.Hence, Short term bond funds and FMPs provide aninteresting investment option.

Short Tenure Debt

Credit

14

Scheme Name Open Date Close DateMinimum

Investment Amount (Rs.)

Tenor

IDFC Fixed Maturity Plan - 17 months series 3 28-Feb-2011 07-Mar-2011 10000 17 months

Religare FMP-VI-A-13M 28-Feb-2011 07-Mar-2011 5000 13 months

ICICI Pru FMP-55-15M 28-Feb-2011 07-Mar-2011 5000 15 months

IDBI FMP-367D-I(Mar 11)-C 04-Mar-2011 07-Mar-2011 5000 367 days

Tata FMP-28-C(G) 28-Feb-2011 07-Mar-2011 10000 91 Days

L&T FMP -III-(Feb 366D )-A(G) 28-Feb-2011 07-Mar-2011 5000 366 Days

DSPBR FMP 12M-15-(G) 04-Mar-2011 07-Mar-2011 10000 12 months

Reliance Fixed Horizon Fund XIX Series 2 01-Mar-2011 08-Mar-2011 5000 367 days

Reliance Fixed Horizon Fund XIX Series 7 01-Mar-2011 08-Mar-2011 5000 462 days

Birla Sun Life Fixed Term Plan-Series CS 24-Feb-2011 08-Mar-2011 5000 366 days

Kotak FMP 6M Series 11 28-Feb-2011 08-Mar-2011 5000 6 months

ICICI Pru FMP-55-6 Months-Plan B 25-Feb-2011 08-Mar-2011 5000 6 months

SBI DFS 13M-11(G) 04-Mar-2011 08-Mar-2011 5000 13 months

HDFC FMP-XVI-370D-Mar 2011(2)-(G) 04-Mar-2011 08-Mar-2011 5000 370 Days

HDFC FMP-XVII-100D-Mar 2011(2)-(G) 04-Mar-2011 08-Mar-2011 5000 100 Days

15

•The Rupee depreciated v/s all the above currencies in themonth of February.

• The rupee fell due to weak global cues and continued outflow of foreign institutional investor funds.

•We expect the Rupee to remain weak as foreign investorshave been shying away from the Indian markets due to highinflation and corruption scandals. High global oil prices couldlead to higher capital outflows.

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

• Exports for the month of January increased by 32.4%(y-o-y) while imports increased by 13.1% over last year.The trade deficit increased to USD 7.9 bn.

• Capital account balance continues to be positive throughFY11 and stands at `1,79,02958 Cr. for the Q1 & Q2.

• We expect the capital account balance to remain positiveas higher interest rates would make investment in theIndian markets attractive hence drawing investments intothe market.

-60000

-10000

40000

90000

140000

FY 09 (Q3) FY 09 (Q4) FY 10 (Q1) FY 10 (Q2) FY 10 (Q3) FY 10 (Q4) FY 11 (Q1) FY 11 (Q2)

Capital Account Balance

-15000

-10000

-5000

0

-20

0

20

40

60

80Export Import Trade Balance (mn $)

-1.6%

-1.4%

-1.2%

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

USD GBP EURO YEN

16

Precious

Metals

Oil & Gas

Global gold demand in 2010 reached a 10 year high in tonnageand an all time high in value, with strong demand across allsectors.India was the strongest growth market in 2010. Total annualconsumer demand of 963.1 tonnes registered growth of 66%relative to 2009, which was largely driven by the jewellerysector. In value terms this was worth US$38 billion. China wasthe strongest market for investment demand growth.Gold is expected to continue getting support as the safe havendemand of the yellow metal would remain intact amidst risingpolitical uncertainty in the Middle East and the North Africanregion.

Crude oil prices fell after reports emerged that Libyan leader

Muammar Gadhaffi had accepted a peace proposal endorsed

by the Venezuelan President and the Arab League. However,

subsequent contradictory reports again renewed concerns of

supply disruptions spreading to the Middle East. Better than

expected US economic data release further stoked speculation

of increase in fuel demand, thereby pushing crude prices

higher again.

Crude

Gold

60

65

70

75

80

85

90

95

Jan 10

Feb 10

Mar 10

Apr 10

May 10

Jun 10

Jul 10

Aug 10

Sep 10

Oct 10

Nov 10

Dec 10

Jan 11

15000

16000

17000

18000

19000

20000

21000

Jan

-10

Feb

-10

Mar

-10

Ap

r-10

May

-10

Jun

-10

Jul-

10

Au

g-10

Sep

-10

Oct

-10

No

v-10

Dec

-10

Jan

-11

This example is for illustrative purpose only and does not constitute a guaranteed return or performance. 17

Tenor 24/27 months

Issuer Karvy Financial Services Limited

Reference Index S&P CNX Nifty Index

Initial Fixing Level Official Closing level of S&P CNX Nifty Index as on DDA

Final Fixing Level Average of Official Closing Level of S&P CNX Nifty Index as on Final Fixing Dates

Nifty Performance{Final Fixing Level / Initial Fixing Level} – 1

Principal Protection 100%

Participation Rate 112%

Coupon Rate Max {0%, PR * Nifty Performance}

Redemption ValueFace Value*(1+Coupon Rate)

Minimum Investment Amount Rs.5,00,000 and in multiples of Rs.1,00,000

Placement Charges 2%+10.30% service tax on placement charges

Overview

• Aditya Birla has launched a private equity fund targeting

innovation themed growth capital investments within sunrise

sectors – Lifestyle, Lifeskills and Education, Lifecare and

Applied Technologies.

Attractiveness

• We believe that the sectors that they have selected are

attractive growing annually at 20% plus supported by benefits

of higher disposable income and improving infrastructure in

the country.

• The managers have had a successful track record in similar

sectors and have delivered consistent returns. Operational

value addition and domain knowledge would be the drivers of

IRR.

• Based on the Investment team’s extensive business network in

overweight sectors 60 high quality early stage proposals have

been received over the last 12 months

Product Features

• Fund size: Rs. 350 Cr. + green shoe option of Rs. 150 Cr.

• Sponsor Commitment: 10%

• Fund tenure: 6 years with an option of a 1 year extension

• Commitment Period: 30 Months from date of initial closing

• Minimum Commitment: 1,000,000

• Indicative Draw-down:

INR 10 lakh 100%

INR 15 lakh–45 lakh Higher of 20% of commitment or

INR 7.5 lakh

> INR 45 lakh 10% of commitment

• Expected IRR: 25% gross p.a.

• Upside Sharing: 20% of net profits of the fund with catch up

• Management fee: 2% p.a. of the total commitment amount

• Setup fee : 2.25% upfront

18

Introduction

• The India realty sector would see a lot of action in the coming few months. Breaking of the news like the housing scams in Mumbai and

Delhi coupled with increasing of the lending rates by banks would definitely stretch the decision process of the customers interested in

the residential segment. Similarly the commercial sector has reported a never seen supply-demand gap which has brought down the

sale price and rental of approx 20% from the levels of September 2008 in all the Tier-I markets of the country. The Tier-I markets

accounts for more than 90% of office and IT/ITES supply.

• Unlike the Commercial, IT space, Warehouse and Malls, the Residential segment till date have resisted signs of correction, possibly

because of the change in interest of the floating retail investors towards the residential segment since late 2009. This is evident from

the fact that the price kept increasing despite of the residential bookings declining to almost 30% in the 2nd and 3rd quarters of year

2010-11 compared to last year. With lot of recent media reporting of price corrections, high cost of debts and the PE / FII community to

liquidating their equity in the coming 2-3 months, it would be advised to carefully choose the right price bands of entry for any real

asset class.

19

Asset Classes Tier-1* Tier-II**

Residential Price increase in any zone of the city inflates price

of other zones without any relativity. Lot of

developments in the periphery of all Tier-I cities

offers interesting investment opportunities, though

Investors should be careful about the kind of

projects. Premium residential would see slow

demand and rent correction.

Very lucrative entry points since prices have

increased at regular pace other than few premium

zones. Trends for larger floor plate developments

seen to attract investors. Lot of established builders

launched projects commanding premium.

Commercial/IT Over supply with less demand has seen a decent

correction of rentals. More than 80% demand was

from the IT and BFSI segment in the year 2010. New

supply would keep the price competitive for the

coming two quarters.

Commercial segment not that significant, but unlike

Tier-I the price differentiation is double favoring

commercial since most of them are in CBD areas.

Retail With the consumer confidence being low in 2008

recession this segment was the most hit but the

sales soon recovered by the 2nd quarter of 2009.

Retailers managed to negotiate with developers

given the collective stand against the opportunist

rentals.

Huge supply in most markets with the over-

estimation of consumer demand by both the retailers

and the developers would have a long lasting effect

in the retail cum mall segment. The high streets

manage to do better than the malls in most cities.

20

Asset Classes Tier-1* Tier-II**

Land Land have been the most in demand in the last two

years. The land shortage within the settled habitat

is becoming scares. The local municipal bodies have

also relaxed FSI norms on accounts of creating

parking spaces, bridges, access roads etc.. Plotted

developments are finding not only investors but

end users also.

Very similar trends though very large parcels of lands

have been blocked by large developers to be cashed

on in the coming years. Plotted developments as new

concepts are catching up.

Other Real Asset Class

Section - Warehouse

Segment

The warehouse segments are predominant on the outskirts of the Tier-I cities mainly on the NH3, NH4 and

NH8. Most of the volume business are done through 3PL service providers. This was always a very

important real estate vehicle and with Govt. of India allowing automatic 100% FDI, the asset is a hit among

all the major real estate private equity players. All major centers like Bhiwadi & Panvel near Mumbai /

Talegoan, Wagholi & Chakan near Pune / Sriperumbudur, Chengalpet & Red-Hills near Chennai / Medchal,

Malkapur & Jeedimetla near Hyderabad / Dharuhera and Pataudi Road near Delhi / NH-6 & NH-2 near

Kolkata have seen rental dropping more 20% percent. The demand of new and better supply is forseen only

to be better with global recovery. The rentals are typically Rs. 11-14 per sqft for a PEB structure and non-

PEB (sheds) anywhere from Rs. 5-8 per sqft. The industry across the has a loading of 20% on carpet area.

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Please Note:

1.Tier I* markets include Mumbai, Delhi & NCR, Bangalore, Pune, Chennai, Hyderabad and Kolkata

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

KARVY is an integrated financial services group, with Karvy Private Wealth being one of its arms. The entiregroup’s strengths are leveraged to provide end-to-end wealth advice to Karvy Private Wealth clients. Forexample, SME clients can receive advice on their personal wealth while also getting investment banking advicefrom the I-banking arm of Karvy.

Leveraging breadth of related businesses that KARVY is in

Maximum choice of products & services

KARVY Private Wealth offers the widest breadth of products and services, providing clients a variety of optionsthrough a single contact. Products and services include equities, debt instruments, commodities, Mutual Funds,Insurance, Structured Products, Financial Planning, real estate advice, etc.

Set to have business in 20 - 25 cities we are poised to cater to families and businesses spread across multiplecities in India providing them with combined and integrated advice. For one-off services, if required, we canalso leverage KARVY Group’s presence in 400 cities.

All-India presence

We ensure that our recommendations are 100% product-neutral and unbiased because unlike other players,we are neither tied up with any one particular insurance company nor do we have our own mutual funds.

Product-neutral advice

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The information and views presented here are prepared by Karvy Private Wealth or other Karvy Group companies. Theinformation contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouchfor the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any lossincurred based upon it.

The investments discussed or recommended here may not be suitable for all investors. Investors must make their owninvestment 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 thatneither Karvy nor any person connected with any associated companies of Karvy accepts any liability arising from the use ofthis information and views mentioned here.

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

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

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Bangalore 080-26606126

Chennai 044-45925923

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

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