Emerging Markets Opportunities - India

8/6/2019 Emerging Markets Opportunities - India

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EMERGING MARKETS

OPPORTUNITIES - INDIA

2011 SPECIAL REPORT


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EMERGING MARKETS OPPORTUNITIES l INDI

INSIDE THE REPORT

Prologue

Indias Economic Indicators

India as a preferred destination for Investments?

Indias Rating

Indias signicance over the rest of world markets

Economic growth and projections by IMF

Sectoral Contribution to Indias Growth

Trends in Industrial Output

Foreign Investments & Performance Scenarios

Best Investment Options for 2011

Performance of Foreign Funds in India

Funds Status in India

Investment news

Concluding Remarks

3

4

5

6

7

8

9

11

13

16

17

19

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PROLOGUE

The worlds largest democracy and second most populous nation, India has seen a signicant

growth in its economic investment and output since the 1990s. As compared to gure, Indias

economy has shown an average growth rate of more than 7% in the decade since 1997, thereby

decreasing poverty by about 10 percentage points. The countrys diverse economy sees agricul-

ture as the primary dependence, though services now accounts for more than half of Indias outpu

and one third of its entire labor force. India had shown viable improvement in IT sector, becoming

a major exporter of software services and software/IT workers.

India emerged relatively untouched from the nancial crisis of 2007-08 as it reported a strong GDP

growth of 7.4% in the 2009-10 scal year, even with a poor rainy season during this period. Firsthalf GDP growth this year has been reported at 8.9 percent over the same period in the previous

year. India has also attracted large amounts of foreign investment in the form of FDI as well as

portfolio investments this year, due to its quick recovery from nancial crisis.

The recovery crisis still prevails in nations like Europe and the United States, though India along

with many other emerging markets has seen an increased inux of foreign capital. Capital require-

ments for Indian industry remain high given the rapid expansion of the economy, which means FD

investments are easily absorbed. Portfolio investment in India this year has broken all previous

records resulting in a steep rise in the equity markets.

This has increased the chances of bubble formation. Between April 1, 2009, and November 8,

2010, the BSE Sensex showed sharp hike from 9,901 points to an all-time closing high of 21,004

points. That index has been hovering around the 20,000 mark ever since.

The table below represents the trend of Indias major economic indicators over years

Country 2007/08 2008/09 2009/10(Est)

2010/11(Proj)

2011/12(Proj)

2012/13(Proj)

Real GDP

(at factor cost, % change)

9.2 6.7 7.4 8.5 9.0 8.5

Wholesale Price Index

(average % change)

4.5 8.3 3.4 8.0 6.0 5.0

Exports

(% change in current US)

26.4 7.9 -12.5 20.4 17.4 17.0

Imports

(% change in current US)

32.1 11.5 -7.8 18.3 15.3 14.4

Current Account Balance

(% of GDP)

-1.4 -2.5 -2.4 -2.4 -2.3 -2.1

General Government Decit

(% of GDP)

5.0 8.8 9.5 8.5 7.4 6.6

General Government Debt

(% of GDP)

74.5 75.1 77.1 74.1 71.3 69.2

India:Selected EconomicIndicators

Sources: Central Statistical

Organization, Reserve Bank

of India and World Bank Staff

Estimates.


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INDIA AS A PREFERRED DESTINATION FOR INVESTMENTS

India is expected to achieve 9 percent economic growth in the current nancial year, driven by

strong performance by the agriculture and industria sectors. The economy grew by 8.9 per cent in

the second quarter of the FY2010.

India has emerged as one of the worlds top ten countries in industrial production. Thenations industrial production grew at the fastest, India is the worlds largest recipient o

overseas remittances. The remittances grew from $49.6 billion in 2009 to $55 billion in

2010. It is also the country with the second largest number of emigrants after Mexico,

according to the World Bank.

India is one of the fastest growing automobile markets in the world, expanding at 35

per cent on average in the rst four months of the FY2010.

The Bombay Stock Exchange has been rated as the worlds best performing stock

market recently. With a 13 per cent gain, Sensex is among the worlds 10 biggest mar-

kets, according to data collected by Bloomberg.

The Indian economy is the eleventh largest in the world by nominal GDP and the fourth largest by

purchasing power parity (PPP).

India is among the top 10 nations in terms of foreign exchange reserves. The countrys foreign

exchange reserves breached the $300-billion mark for the rst time since 2008 with an addition of

$2.2 billion on the back of a healthy rise in foreign currency. The nations forex reserves currently

stand at $296.40 billion.

Indias services sector, backed by the IT revolution, remains the biggest contributor to the coun-

trys GDP, with a contribution of 58.4 per cent. The industry sector contributed 24.1 per cent and

the agriculture sector contributed 17.5 per cent to the GDP.

The Indian IT-BPO industry is expected to exceed $70 billion in scal 2011. The Indian IT-BPO

exports are projected to grow by 13 per cent to 15 percent while domestic IT-BPO will grow slightly

more by 15 per cent to 17 per cent during scal 2010-11.

India owns over 18,000 tonnes of above ground gold stocks worth approximately $800 billion and

representing at least 11 per cent of global stock, according to estimates of World Gold Council.

India ranks 11th in the world with 557.7 tonnes of gold reserves.

Indias civil aviation sector will be among the top ve in the world in the next ve years. Indian

domestic air trafc is expected to reach 160-180 million passengers per year, while international

trafc will exceed 80 million.

India, China and Brazil are the top three target countries for foreign direct investment until the end

of 2012 with the United States, for years number one, now in fourth place, according to the UN

trade and development agency UNCTAD.

The Indian telecommunications industry is the worlds fastest growing telecommunications indus-

try, 723.28 million telephone (landlines and mobile) subscribers and 687.71 million mobile phone

connections as of September 30, 2010.


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INDIAS RATING

Standard & Poors raised Indias outlook to stable from negative on expectations tha

the economys scal position may recover and the economy would remain on a strong

growth path. The agency also afrmed its rating on the long-term and short-term credit.

Following are key economic issues for Asias third-largest economy. Indias wholesale

price index topped expectation and came within touching distance of double digits inFebruary. Annual wholesale price ination accelerated to 9.89 percent in February, the

highest since October 2008 and well above the Reserve Bank of Indias (RBI) end-

March projection of 8.5 percent and the 8.56 percent January reading.

Fitchs Outlook on Long-term ratings forIndian banks remains Stable in 2011, after a

negative bias in 2009 following the credit crisis.

The Stable Outlook reects easing asset quality concerns, together with an improving

loan loss reserves position and expectations of further infusions of common equity by

the government.

Moodys Investor Service had upgraded Indias local bond rating to Ba1, one notch below in-

vestment grade, citing improving public nances due to recent government reforms. Moodys alsosaid it would consider unifying Indias local and foreign currency ratings at Baa3.

Fitch Ratings raised Indias local currency rating outlook to stable from negative forecasting

lower debt ratios on the back of strong economic growth and robust cash ows from telecom

auctions. The agency afrmed Indias BBB-minus local and foreign currency rating and the stable

outlook on its foreign currency rating.

COMPARITIVE SURVEY

NCEAR

Du

nan

dBra

ds

tree

tan

dRBI

(Percen

t)

HSBC-M

ar

ke

tan

dFICCI

(Percen

t)

225

175

125

75

25

75

70

65

60

55

50

45

40

35

Sep-06

Dec-06

Mar-0

7

Jun-07

Sep-07

Dec-07

Mar-0

8

Jun-08

Sep-08

Dec-08

Mar-0

9

Jun-09

Sep-09

Dec-09

Mar-1

0

Jun-10

Sep-10

NCAER Dun&Bradstreet

HSBC-Markit FICCI

RBI-BEI(Expectation Quarter)

Business ConditionsSurvey:A Comparison


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INDIAS SIGNIFICANCE OVER THE REST OF WORLD MARKETS

India to overtake US as 2nd largest economy by 2050:PwC

As per the report published by PwC, India is expected to overtake the USA and emerge

as the Worlds second largest economy on purchasing power

parity basis by 2050. It also stated that India has the potential to surpass China as the

country has a signicantly younger and faster growing working

age population than China. Global nancial crisis has further accelerated the shift ineconomic power to the emerging economies.

India among the worlds top three preferred investmenthubs

A Columbia University report stated that India is amongst the worlds top three preferred

investment destinations, but equity caps limit the size of potential inows. The report

stated that as the main drivers of foreign investment in India were liberalization in for-

eign direct investment (FDI) policy and several economic sectors, a globally competitive

workforce, and rapid gross domestic product (GDP) and market growth. It also stated

that India is presently the 13th largest in terms of foreign investment inows, which

have risen 15-fold since 2000. The report said while investors initially concentrated onmanufacturing, power and telecommunications, they now focus on services.

Indias growth drives global economic recovery: WorldBank

World Bank President Robert Zoellick has recently stated that the high level of growth

in India is helping the international economy recover from the disastrous effects of

recent nancial turmoil. He said that when the world economies were trying to recover

130

125

120

115

110

105

100

95

90

85

80

Apr-J

un

20

05

Jul-s

ep

20

05

Oct-D

ec

2005

Jan-Ma

r

2006

Apr-J

un

20

06

Jul-s

ep

20

06

Oct-D

ec

20

06

Jan-Ma

r

2007

Apr-J

un

20

07

Jul-s

ep

20

07

Oct-D

ec

20

07

Jan-Ma

r

2008

Apr-J

un

20

08

Jul-s

ep

20

08

Oct-D

ec

20

08

Jan-

Mar

20

09

Apr-J

un

20

09

Jul-s

ep

20

09

Oct-D

ec

20

09

Jan-Ma

r201

0

Apr-J

un20

10

Jul-s

ep20

10

Oct-D

ec20

10

Index

Assessment Expectations Threshold

Reserve BanksIndustrial OutlookSurvey:Business Expecation


7/20


from nancial turmoil, Indias growth rate picked up to 7.4 percent in 2009-10 from 6.7 percent a

year ago. The economy expanded by 8.9 percent in the rst half of the current scal, making India

one of the fastest growing economies in the world. As per the International Monetary Funds (IMF)

forecasts, Indian economy is expected to record a growth rate of 8.8 percent in 2010-11.

Domestic market opportunities are growing fast in India

As per the India Economic Update by World Bank, the countrys middle class is estimated to

expand from 50 million people in 2005 to 500 million by 2025. The outlook for the next 20 years,

however, makes India an attractive market to invest in, and many international consumer goods

companies do so. For now many of them contend themselves with sales outlets rather than pro-

duction bases, because economies of scale allow them to do produce cheaper elsewhere. This is

changing, however, in particular when production costs in East Asia are rising with rising wages.

ECONOMIC GROWTH PROJECTIONS BY IMF

Country 2007 2008 2009 2010 2011

World Output

(at Market Exchange Rates)

3.9 1.8 -2.0 3.6 3.4

Advanced Economies 2.8 0.5 -3.2 2.6 2.4

Emerging & Develping Economies 8.3 6.1 2.4 6.8 6.4

U.S.A. 2.1 0.4 -2.4 3.3 2.9

Eurozone 2.8 0.6 -4.1 1.0 1.3

Germany 2.5 1.2 -5.0 1.4 1.6

France 2.3 0.3 -2.2 1.4 1.6

Italy 1.5 -1.3 -5.0 0.9 1.1

Spain 3.6 0.9 -3.6 -0.4 0.6Netherlands 3.6 2.0 -4.0 1.3 1.3

Japan 2.4 -1.2 -5.2 2.4 1.8

U.K. 2.6 0.5 -4.9 1.2 2.1

Canada 2.5 0.4 -2.6 3.6 2.8

Austrailia 4.7 2.4 1.3 3.0 3.5

Korea, South 5.1 5.1 0.2 5.7 5.0

Taiwan 6.0 6.0 -1.9 7.7 4.3

Singapore 8.2 8.2 -2.0 9.9 4.9

China 13.0 9.6 8.7 10.5 9.6

India 9.4 7.3 5.7 9.4 8.4Asean 5 6.2 4.7 1.7 6.4 5.5

Brazil 6.1 5.1 -0.2 7.1 4.2

Russia 8.1 5.6 -6.6 4.3 4.1

South Africa 5.5 3.7 -1.8 2.6 3.6

Note : Asean 5 are Indonesia,

Thailand, Philippines, Malay-sia and Vietnam

Source: Update to World

Economic Outlook, IMF, July

2010 and WEO April 2010

Database


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SECTORAL CONTRIBUTION TO INDIAS GROWTH

The sectors contributing to the Indias GDP is big in numbers and includes food processing,

transportation equipment, petroleum, textiles, software, agriculture, mining, machinery, chemicals,

steel, cement and many others. Agriculture is the major occupation in India, employing more than

50 percent of the population while service sector employs more than 25 percent and the industrial

sector accounts more than 10 percent.

AGRICULTURAL SECTOR

Indian agricultural yields lag the highest yields found elsewhere in the world.

Outlook- The better rainfall this year has lead to far higher agricultural growth. The

Central Statistical Organisation (CSO) has reported that Indias farm sector grew by

2.5% and 4.4% in the rst two quarters of this year and with the good rainy season this

year and the expectation of good rains next year too, the outlook for Indian agriculture

in 2011 is good. According to the monsoon forecasts by the Meteorological Depart-

ment, crop output is expected to show a strong rebound in 2010/11.Ex

INDUSTRIAL SECTOR

The General Index of Industrial Production (IIP) has posted double digit growth rate driven by

similar growth rates in output in the manufacturing and mining sector. Manufacturing output growth

in 2009/10 was strong in all the quarters, especially in the case of capital goods and durable con-

sumer goods while growth in non-durable consumer goods were impacted by poor export growth

and a lower output of sugar.

Outlook- Industrial performance in India in 2011 will be inuenced more by external factors than

the domestic circumstances. Domestic consumption and economic recovery in Europe and North

America will play a huge part in industrial growth in India. Industrial growth in 2011 is forecasted

to be between 6-7 percent with signicant downside risks. Overall, GDP in the industrial sector is

forecasted to expand 9.6 per cent in 2010/11, rising to 10.3 per cent in 2011/12.

Ex

CONSTRUCTION SECTOR

Services sector grew to 57 percent of GDP by 2009-10. The services industry in India

is well diversied due to which overall growth in the sector has been resilient even

through economic troughs.

Outlook - The outlook for services in 2011 is good to the extent that the Indian nancia

system is nowhere nearly as exposed to the nancial instruments or the loose lending

that many western banks were involved in. Overall, non-farm sector GDP grew by 8.8

per cent in 2009/10. The expansion in the services sector is expected to approach 9

per cent in 2010/11 and inch up to 9.6 per cent in 2011/12. Over all, the non-farm sec-

tor is expected to grow by 9.2 per cent in 2010/11 and 9.8 per cent in 2011/12.


9/20


SERVICE SECTOR

Services sector grew to 57 percent of GDP by 2009-10. The services industry in India

is well diversied due to which overall growth in the sector has been resilient even

through economic troughs.

Outlook - The outlook for services in 2011 is good to the extent that the Indian nancia

system is nowhere nearly as exposed to the nancial instruments or the loose lendingthat many western banks were involved in. Overall, non-farm sector GDP grew by 8.8

per cent in 2009/10. The expansion in the services sector is expected to approach 9

per cent in 2010/11 and inch up to 9.6 per cent in 2011/12. Over all, the non-farm sec-

tor is expected to grow by 9.2 per cent in 2010/11 and 9.8 per cent in 2011/12.

INDIA: RISK ASSESSMENT

RISK TYPE JANUARY 2011

Sovereign risk BB

Currency risk BB

Banking sector risk BB

Political risk BBB

Economic structure risk BBB

FISCAL DEFICIT TRENDS (IN % OF GDP)

12%

10%

8%

6%

4%

2%

0%2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

States Fiscal DeficitOff - Budget Liablities

Centres Fiscal Deficit

Source : Ministry of Finance

Source :

India: Country risk summary


10/20


TRENDS IN INDUSTRIAL OUTPUT(UNIT: PERCENT)

Source : EAC, Gov of India

AVERAGE SECTORAL CONTRIBUTIONS TO ECONOMY (%CHANGE)

Sectoral Classication Use Based Classication

General Manufacture Electricity Mining Basicgoods

Capitalgoods

Inter-mediategoods

Consumergoods

Total Durables Non-Durables

2007/08

Q1 10.3 11.1 8.3 2.7 9.4 19.1 9.3 9.0 -0.7 12.4

Q2 8.7 8.9 7.1 7.4 9.3 21.3 10.5 2.2 -5.5 5.1

Q3 8.3 8.9 4.6 5.5 5.0 20.8 8.9 6.2 2.1 7.6

Q4 6.7 7.3 5.5 5.2 4.7 12.2 7.1 6.8 0.1 8.9

2008/09

Q1 5.3 5.8 2.0 4.0 3.1 7.9 2.6 8.6 3.5 10.1

Q2 4.7 4.9 3.2 3.8 4.7 13.2 -1.7 6.6 10.8 5.1

Q3 0.8 0.5 2.9 2.0 2.4 3.8 -5.8 3.3 -1.8 4.9

Q4 0.8 0.3 3.0 0.9 0.4 5.0 -3.2 1.2 5.6 -0.1

2009/10Q1 3.8 3.4 6.0 6.8 6.3 2.0 7.4 -0.5 15.6 -5.3

Q2 9.0 9.2 7.4 9.0 5.9 8.6 11.7 10.1 23.7 5.1

Q3 13.4 14.6 3.8 10.3 6.1 21.6 19.3 12.5 33.7 6.0

Q4 15.1 16.0 6.7 12.7 10.1 41.1 17.1 7.5 31.5 0.2

2007/08 8.5 9.0 6.4 5.2 7.0 18.0 8.9 6.1 -1.0 8.5

2008/09 2.8 2.8 2.8 2.6 2.6 7.3 -2.1 4.7 4.5 4.8

2009/10 10.1 10.5 5.8 9.7 7.3 20.0 13.5 7.3 25.1 1.6

2010/11 9.8 10.1 7.5 8.0 5.7 28.0 6.3 8.5 16.5 5.3

Agriculture, hunting, forestry, fisheries

Brazil

China

Republic of KoreaRussian Federation

IndiaMexico

South America, excl. Brazilsouth Asia, excl. India

south-East AsiaNorth Africa

Central EuropeCIS, excl. Russian Fed.

-1 0 1 2 3 4 5 6 78

Manufacturing

Brazil

China

Republic of KoreaRussian Federation

IndiaMexico




-1 0 1 2 3 4 5 6


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FOREIGN INVESTMENTS & PERFORMANCE SCENARIOS

FDI

India, which was a minor global FDI player in 2000, is presently the worlds thirteenth largest FDIhost country.

Presently services sector accounts for approximately 61% of Indias annual FDI inows and

manufacturing accounts for 27%, while primary sector activities (primarily mining and petroleum)

accounts for 9% approximately.

Eighty percent of post-2000 FDI inows have been in the form of Greeneld investments.

The average investment size also quadrupled from US$ 9 million to US$ 34 million over this pe-

riod.

Mining, quarrying and utilities

Brazil

ChinaRepublic of Korea

Russian FederationIndia

Mexico

South America, excl. Brazilsouth Asia, excl. Indiasouth-East Asia

North AfricaCentral Europe

CIS, excl. Russian Fed.

-1 0 1 2 3 4 5 6 78

Services

Brazil

ChinaRepublic of Korea

Russian FederationIndia

Mexico




-1 0 1 2 3 4 5 6

26197

10446

45668

4193839455

2541123221

17842

1392512513

50000

45000

40000

35000

30000

25000

20000

15000

10000

5000

0

Servi

ce

Secto

r

Comp

uter

Softw

are&

Hardwa

re

Telec

ommu

nicati

ons

Housing

&Re

alEs

tate

Cons

tructi

on

Activitie

s

Powe

r

Autom

obile

Indus

try

Metallur

gical

Indus

tries

Petroleum

&

Natural

Gas

Chemica

ls

Top ten sectors at-tracting FDI Inows(US$/mln)

Source : World Bank; Period 1995-2010


12/20


While the largest recent greeneld investments span various sectors, the largest recent M&As

focus on telecommunications, energy and pharmaceutics/healthcare sector.

In 2010/11 and 2011/12 analysts forecast a continued expansion of net FDI to $30 billion in both

years, portfolio capital inows of $25 billion and $35 billion and a steady increase in net loan capi-

tal inows to $17 and $25 billion respectively.

Overall, our estimates for capital inows are $73 billion in 2010/11 and $91 billion in 2011/12.

This would be adequate to nance the large current account decit in the two years and leave a

modest $31 and $41 billion (2.0 and 2.4 per cent of GDP) to be absorbed in the foreign exchange

reserves.

Offshore opportunity

Despite India accounting for 51 per cent market share of the off shoring market, there is

still tremendous space for growth as current off shoring market is still a small part of the

outsourcing industry.

Indian companies are expected to focus on mainland Europe to tap growth opportunitiesin the offshore technology services market worth tens of billions of dollars.

According to Gartner Research, the countrys technology services, dominated by IT

services exports worth USD 60 billion will touch USD 3.6 trillion in 2011.

Exports

Indias exports showed an extraordinary annual growth of 36.4% which was highest in 33

-month with consignments in December 2010 raising prospects of the country exporting

$215-225 billion worth of merchandise in the current scal.

IndiExports in December aggregated $22.5 billion, while imports contracted by 11.1% to

$25.1 billion, resulting in a narrow trade decit of $2.6 billion, the lowest in three-year.

30%

12%

12%

12%

10%

7%

6%

4%

4%3%

Service Sector

Computer Software & Hardware

Telecommunications

Housing & Real Estate

Construction Activities

Power

Automobile Industry

Metallurgical Industries

Petroleum & Natural Gas

Chemicals

Sectors attracting FDIinows (% Share)

Mauritiu

s

Singapo

reUS

A UK

Nethe

rland

sJa

pan

Cyprus

Germ

any

Fran

ce UAE

52398

115579204

6269 5289 4631 44982903 1870 1828

60000

50000

40000

30000

20000

10000

0


13/20


In 2010/11, analysts forecast the value of crude oil imports to be high due to increase in

crude prices by almost 15 per cent and an increase in the quantities imported.

The oil import bill is expected to rise to $103 billion in 2010/11 and to $120 billion in

2011/12. Amongst the non oil imports, a comparatively slower growth is expected in the

case of gold, silver imports and a stronger growth in the remaining segments.

The overall merchandise imports on balance-of-payments basis are expected to rise to

nearly $354 billion (up 18 per cent) in 2010/11 and $414 billion (up 17 per cent) in

2011/12.

On the export side, petroleum products would be slightly higher than that of imports at

24 and 16 per cent in 2010/11 and 2011/12 respectively.

BEST INVESTMENT OPTIONS FOR 2011

The Indian Securities market remained stable during 2009-10, as the global marketstoo witnessed improved stability with an indication of prospects of rm recovery.However, scal concerns remain strong as sovereign risks continue to be a cause ofconcern in some European countries.

Primary Securities Market and Secondary Securities Market

Indian primary market witnessed renewed activity in terms of resource mobilisation and num-

ber of issues during 2009-10, building it further from its relatively subdued pace in 2008-09. In

view of the recovery witnessed in equity markets post global nancial crisis, companies entered

the primary market and investors response to public issues was encouraging in 2009-10 when

compared to 2008-09. Secondary market also witnessed revival following sharp fall in the previ-

ous year in the wake of global nancial crisis that had plunged global equity markets. Investors

Countries attractingFDI inows (% Share)

Mauritius

Singapore

USA

UK

Netherlands

Japan

Cyprus

Germany

France

UAE

52%

12%

9%

6%

5%

5%

4%3%

2%2%

Grow

th(i

npercen

t)

100

80

60

40

20

0

-20

-40

-60

Apr-

08

May-

08

Jun-

08

Ju

l-08

Aug-

08

Sep-

08

Oc

t-08

Nov-

08

Dec-

08

Jan-

09

Fe

b-

09

Mar-

09

Apr-

09

May-

09

Jun-

09

Ju

l-09

Aug-

09

Sep-

09

Oc

t-09

Nov-

09

Dec-

09

Jan-

10

Fe

b-

10

Mar-

10

Apr-

10

May-

10

Jun-

10

Ju

l-10

Aug-

10

Sep-

10

Exports Imports


14/20


regained condence and the Indian market rallied post announcement of general election results

during May 2009.

Equity Growth

During 2009-10, all the equity markets witnessed uptrend, however, in different mag-

nitude. The Indian benchmark indices namely BSE Sensex and S&P CNX Nifty gave

year on year return of 80.5 percent and 73.8 percent respectively in 2009-10. The BSE

Small-cap index recorded an increase of 161.7 percent in 2009-10. Among the sec-

toral indices, highest increase was recorded by BSE Metal index (210.2 percent), BSE

Consumer Durables (159.7 percent) and BSE Auto index (150.6 percent). While the

metal index reected the strengthening of metal prices, the general upward trend in the

economy and industrial production got reected in increase in the capital goods and

auto indices.

The equity market has entered territory that it occupied exactly two years ago and in

similar

fashion the level of the stock market (the Bombay Sensitive Index or SENSEX) is close to 21,000.

Relative valuations are on the richer side and hence analysts expect moderation in index

returns for 2011 (in the 10- 15 percent zone from current levels).

Investments in Mutual Funds

Mutual funds after witnessing redemption pressures during later half of 2008-09 post global

credit crisis witnessed renewal of investors interest in terms of mobilization of resources through

new fund offerings as well as existing schemes. The gross mobilisation of resources by all mutual

funds during 2009-10 was at Rs.100190 billion compared to Rs.54263 billion during the previous

year indicating an increase of 84.7 percent over the previous year. Redemption also rose by 82.2

percent to Rs.99359 billion in 2009-10 from Rs.54546 billion in 2008-09.

All mutual funds, put together, recorded a net inow of Rs.830 billion in 2009-10 as compared

to an outow of Rs.282 billion in 2008-09. The assets under management by all mutual funds

increased by 47.2 percent to Rs.6139 billion at the end of March 2010 from Rs.4173 billion at the

end of March 2009.

20000

18000

16000

14000

12000

10000

8000

24000

19000

14000

9000

4000

-1000

-6000

-11000

Apr-

09

Jun-

09

Aur-

09

Oc

t-09

Dec-

09

Fe

b-

10

Apr-

10

Jun-

10

Aug-

10

FII Investment

Mutual Fund Investment

Average BSE Sensex (RHS)

Rscrore


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PE and Venture Capital Investments

The year 2011 is likely to witness maximum number of private equity/venture capital exits in the

history of Indian PE industry. The typical cycle of investment-exit is expected to get completed in

2010-11 for many PE investors in India.

Private equity rms exited a record 121 companies in India during 2010, while investments almost

doubled to $7.97bn from the 2009 gure. Venture capital and private equity investments in India

had witnessed a phenomenal growth both in terms of amount invested (from $1.8 billion in 2004 to

$22 billion in 2007 before tapering off to $8.1 billion in 2008) as well as the number of deals (from

80 in 2004 to 481 in 2007 and then slowing down to 297 in 2008). There were huge PE invest-

ments in technology-led, capital intensive sectors like Telecom, Power and Infrastructure in ad-

dition to those sectors that were traditionally preferred by VCPE investors like IT & ITES, Health-

care, etc. Private Equity rms invested $7,974 million over 325 deals in India during the 12 months

ending December 2010, compared to $4,068 million across 290 deals during the previous year,

according to analysis by Venture Intelligence, a research service focused on Private Equity and

M&A activity. (These gures include VC investments and exclude PE investments in Real Estate).

With 34 investments worth about $2,141 million, Energy companies topped in terms of investment

value during 2010, while Information Technology and IT-Enabled Services (IT & ITES) with 79investments worth $696 million topped in terms of volume. BFSI with 44 investments worth $1,054

million came second on both parameters.

IPOs in 2010

Indian IPO market has witnessed a strong comeback in 2010 after sluggish performance in 2009

as most of the companies rushed to capital markets to raise funds on encouraging stock markets.

Jubilant FoodWorks, Thangamayil Jeweller, Talwalkars Better Value Fitness emerged as top 3

performers in 2010. Meanwhile, Coal India and MOIL were most successful IPOs which received

overwhelming response from investor community.

IPO 2011 Scenario India IPO 2011 outlook seems bright with at least 100 public is-

sues in the pipeline, with an indicative size of around Rs 400billion. If the government

maintains its Rs 400 billion target for the next scal too, total may be Rs 900 billion, up

27% from 2010. Thirty ve

prospectuses have already got the SEBIs clearance, while the remaining sixty ve

are awaiting nod. The country also celebrated its biggest IPO ever this year with the

worlds largest coal producer Coal India, collecting $3.5 billion in October. Big private

companies, like Jindal Power and Sterlite Energy which are planning an initial public of-

fering in 2011, may have to lower valuation expectations as investors turn choosy, after

proting from state-owned companies issues that were priced attractively. IPO outlook

for the year 2011 will see a massive bunch of issues hit the market unlike before and

the issuers will have to price their trade more sensibly to attract investor attention.

Corporate Bond Market

The number of trades in corporate bonds during 2009- 10 rose by 68.5 percent in

comparison to 2008-09. In comparison to increase in number oftrades, increase in the

volume of trades during 2009-10 is very signicant. This increase is mainly attributed to

increase in volume of trades reportedat FIMMDA by 218.5 percent followed by NSE at

206.9 percent and BSE at 42.9 percent.


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PERFORMANCE OF FOREIGN FUNDS IN INDIA

Fund Name Performance

1 Mth % 3 Mths % 6 Mths % 1 Yr % 3 Yrs %

AIG India Equity Fund - Reg - Growth -9.69 -11.01 -3.93 3.24 -0.11

Benchmark Derivative Fund - Growth 0.54 1.7 3.25 4.75 N/A

Benchmark Equity And Derivative Opportunities Fund - Growth 0.69 2.06 3.76 5.46 5.52

Benchmark S&P CNX 500 Fund - Growth -10.92 -13.23 -2.75 5 N/A

BNP Paribas China-India Fund - Growth -7.41 -10.59 -1.39 9.14 -0.96

BNP Paribas Dividend Yield Fund - Growth -9.16 -13.04 -1.82 14.49 7.93

BNP Paribas Equity Fund - Growth -10.4 -10.08 1.69 11.15 -3.49

BNP Paribas Mid Cap Fund - Growth -13.59 -18.49 -8.15 9.65 -10.27

BNP Paribas Opportunities Fund - Growth -11.23 -15.68 -6.05 4.61 -14.5

BNP Paribas Sustainable Development Fund - Growth -11.46 -14.88 -4.45 5.65 -1.76

Fidelity Equity Fund - Growth -9.11 -10.65 0.01 18.34 7.26

Fidelity India Growth Fund - Growth -9.33 -10.26 0.48 18.01 7.61

Fidelity India Special Situations Fund - Growth -9.21 -12.22 -1.27 13.18 3.65

Fidelity India Value Fund - Growth -9.92 -14.27 -3 10.59 N/A

Fidelity International Opportunities Fund - Growth -6.46 -6.72 3.23 17.8 7.39

Franklin Asian Equity Fund -Growth 1.36 3.1 9.89 17.26 6.95

Franklin India Bluechip - Growth -8.53 -7.89 2.5 14.86 7.29

Franklin India Flexi Cap Fund - Growth -8.92 -11.62 1.13 14.19 5.6

Franklin India High Growth Companies Fund - Growth -11.22 -16.62 -3.89 4.87 0.36

Franklin India Index Fund - BSE Sensex Plan - Growth -10.31 -9.95 1.84 12.23 0.56

Franklin India Index Fund - NSE Nifty Plan - Growth -10.26 -10.39 1.33 12.11 1.09

Franklin India Opportunity Fund - Growth -9.99 -13.03 -1.48 9.2 -2.62

Franklin India Prima Fund - Growth -12.9 -17.71 -6.76 6.05 0.78Franklin India Prima Plus - Growth -8.16 -9.72 0.77 11.66 4.51

Franklin India Smaller Companies Fund - Growth -11.24 -16.73 -5.71 6.45 -0.74

HSBC Dynamic Fund - Growth -8.48 -9.91 3.05 11.39 -3.13

HSBC Equity Fund - Growth -8.7 -10.29 1.66 13.6 0.17

HSBC India Opportunities Fund - Growth -9.4 -11.33 0.67 10.92 -2.67

HSBC Midcap Equity Fund - Growth -15.4 -22.98 -9.91 -2.36 -5.92

HSBC Progressive Themes Fund - Growth -14.38 -22.71 -12.5 -5.39 -11.95

HSBC Unique Opportunities Fund - Growth -9.79 -13.25 2.89 13.25 -5.61

ING C.U.B. Fund - Growth -10.91 -16.16 -6.04 7.41 -3.28

ING Contra Fund - Growth -10.71 -13.9 -5.8 2.66 2.85ING Core Equity Fund - Growth -8.67 -10.59 2.24 14.54 0.27

ING Dividend Yield Fund - Growth -8.68 -12.5 -0.96 17.33 13.67

ING Domestic Opportunities Fund - Growth -10.43 -15.36 -5.34 6.88 -1.66

ING Midcap Fund - Growth -10.28 -15.54 -7.4 7.46 -2.04

ING Nifty Plus Fund - Growth -10 -10.12 1.36 11.87 1.22

ING OptiMix Multi Manager Equity Fund - Plan A - Growth -12.14 -15.46 -7.37 3.71 -7.51

JPMorgan India Equity Fund - Growth -10.8 -12.27 -0.38 16.57 -0.18


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JPMorgan India Smaller Companies Fund - Growth -12.92 -16.98 -7.05 12.18 -5.91

Morgan Stanley A.C.E Fund - Growth -11.2 -13.8 -3.17 10.69 N/A

Morgan Stanley Growth Fund - Growth -11.74 -14.64 -1.86 10.35 -0.19

Pramerica Equity Fund - Growth -10.24 N/A N/A N/A N/A

PRINCIPAL Dividend Yield Fund - Growth -10.22 -14.89 -1.39 14.21 4.81

Principal Emerging Bluechip Fund - Growth -13.69 -17.82 -7.6 4.96 N/A

PRINCIPAL Growth Fund - Growth -11.41 -13.79 -4.31 4.28 -8.12PRINCIPAL Index Fund - Growth -10.29 -10.47 1.24 11.76 0.04

Templeton India Equity Income Fund - Growth -5.56 -4.73 10.21 21.33 10.68

Templeton India Growth Fund - Growth -9.87 -11.89 0.86 12.23 9.19

Note: Performances till date

FUNDS STATUS IN INDIA

Fund Name No. ofSchemes*

AssetUnder

Manage-ment

BillionRupees

As on Corpus As on Corpus Net inc/dec incorpus

AIG Global Investment Group Mutual Fund 45 31-Dec-10 8.83 30-Sep-10 10.20 -1.37

Axis Mutual Fund 39 31-Dec-10 50.13 30-Sep-10 46.36 3.77

Baroda Pioneer Mutual Fund 33 31-Dec-10 29.61 31-Oct-10 41.39 -11.78

Benchmark Mutual Fund 18 31-Dec-10 29.35 30-Nov-10 29.90 -0.55

Bharti AXA Mutual Fund 45 31-Dec-10 4.12 30-Sep-10 5.11 -0.99

Birla Sun Life Mutual Fund 238 31-Dec-10 576.89 31-Oct-10 613.55 -36.66BNP Paribas Mutual Fund 119 31-Dec-10 50.21 30-Sep-10 49.65 0.56

Canara Robeco Mutual Fund 90 31-Dec-10 73.92 30-Sep-10 77.19 -3.26

Daiwa Mutual Fund 11 31-Dec-10 1.35 30-Sep-10 3.19 -1.84

Deutsche Mutual Fund 133 31-Dec-10 62.85 30-Nov-10 65.21 -2.36

DSP Blackrock Mutual Fund 126 31-Dec-10 276.68 30-Sep-10 266.74 9.94

Edelweiss Mutual Fund 39 31-Dec-10 2.14 30-Sep-10 2.15 -0.01

Escorts Mutual Fund 30 31-Dec-10 2.03 30-Sep-10 1.98 0.05

Fidelity Mutual Fund 79 31-Dec-10 89.01 30-Sep-10 85.36 3.65

Franklin Templeton Mutual Fund 163 31-Dec-10 394.4 30-Sep-10 421.42 -27.00

HDFC Mutual Fund 201 31-Dec-10 878.83 30-Sep-10 931.06 -52.22HSBC Mutual Fund 83 31-Dec-10 47.29 30-Sep-10 48.10 -0.81

ICICI Prudential Mutual Fund 379 31-Dec-10 658.41 30-Sep-10 697.28 -38.87

IDBI Mutual Fund 12 31-Dec-10 20.52 30-Sep-10 22.00 -1.48

IDFC Mutual Fund 201 31-Dec-10 173.48 30-Sep-10 183.98 -10.51

ING Mutual Fund 85 31-Dec-10 13.86 30-Sep-10 14.68 -0.82

JM Financial Mutual Fund 88 31-Dec-10 64.54 30-Nov-10 63.30 1.24

JPMorgan Mutual Fund 37 31-Dec-10 51.96 30-Sep-10 84.48 -32.52

Kotak Mahindra Mutual Fund 152 31-Dec-10 265.89 30-Sep-10 284.30 -18.41


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L&T Mutual Fund 81 31-Dec-10 31.93 30-Sep-10 35.43 -3.50

LIC Mutual Fund 62 31-Dec-10 186.95 30-Sep-10 197.27 -10.32

Mirae Asset Mutual Fund 33 31-Dec-10 3.28 30-Sep-10 2.75 0.53

Morgan Stanley Mutual Fund 12 31-Dec-10 23.61 30-Sep-10 23.51 0.10

Motilal Oswal Mutual Fund 2 31-Dec-10 3.01 30-Sep-10 3.05 -0.04

Peerless Mutual Fund 24 31-Dec-10 23.06 30-Nov-10 20.94 2.11

Pramerica Mutual Fund 14 31-Dec-10 11.09 30-Sep-10 6.30 4.78PRINCIPAL Mutual Fund 72 31-Dec-10 57.64 30-Sep-10 56.42 1.22

Quantum Mutual Fund 11 31-Dec-10 1.17 30-Sep-10 1.19 -0.03

Reliance Mutual Fund 242 31-Dec-10 1020.66 30-Sep-10 1077.49 -56.82

Religare Mutual Fund 110 31-Dec-10 104.11 30-Sep-10 107.80 -3.69

Sahara Mutual Fund 44 31-Dec-10 3.16 30-Sep-10 7.56 -4.40

SBI Mutual Fund 155 31-Dec-10 414.98 30-Sep-10 421.00 -6.03

Sundaram Mutual Fund 175 31-Dec-10 145.29 30-Sep-10 142.41 2.88

Tata Mutual Fund 183 31-Dec-10 208.55 30-Sep-10 219.64 -11.09

Taurus Mutual Fund 56 31-Dec-10 25.33 30-Nov-10 23.68 1.65

UTI Mutual Fund 227 31-Dec-10 653.87 30-Sep-10 676.18 -22.30


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INVESTMENT NEWS

Global investors buy stocks at record high on risingoutlook

The Securities and Exchange Board of India, nations market regulator stated recentlythat the Global funds purchased a net 2.24 billion rupees ($49.2 million) of Indian

equities on Feb. 4. It stated that foreigners bought 25.8 billion rupees of shares, while

they sold 23.5 billion rupees. Overall in 2010, the global investors bought a record 1.33

trillion rupees of shares, raising the benchmark index 17 percent and making it the

best performer among the worlds 10 biggest equity markets. They invested 464 billion

rupees in bonds last year.

Indian stocks a clear buy: Goldman

Goldman Sachs Asset Managements chief investment ofcer for India, Prashant

Khemka had stated recently that Indian stocks remains on top pref-erence for buy for

the next few years because ination fears and concerns about overvaluation are unjus-

tied. Khemka believes that Indian compa-nies earnings could post annual growth of

up to 20 percent over the next three to four years. He said that sluggish growth in the

U.S. or Europe is good for India rather than a concern for two reasons: rst, exports as

a percentage of the economy is much smaller for India compared with most countries;

second, it helps to keep in check commodity prices, mainly crude oil. He further stated

that Indian IT sector also beneted from low capi-tal expenditure and high returns, mak

ing it an attractive investment opportunity.

Indian Bonds see steady returns

Indian bonds seem an attractive buy for International investors to lock in the highest yields since2008, with the rupee forecasted to generate the worlds biggest returns after the Turkish lira.

According to the Bloomberg data the rupee is expected to generate a return of 13% including

interest-rate income this year, more than four times the 3% gain predicted for Chinas yuan. Over-

seas investments in Indian bonds reached an all-time high of $20.3 billion in January as 10-year

yields jumped 0.24 percentage point, the rst monthly increase since October.

HSBC plans to enter Indian equities

Garry Evans the Global Head of Strategy at HSBC said that the Emerging Markets are fundamen-

tally under owned by global investors. He also stated that HSBC may enter Indian equities in the

next one or two quarters. It is getting at a more attractive price level and the fundamental story

still re-mains very attractive for Indian equities, he says.

Morgan Stanley plans investments in India infrastructure rm

Morgan Stanleys Global Infrastructure Fund plans investment $200 million for an equity stake in

the Indian arm of privately held Spanish construc-tion rm Isolux Corsan, the Economic Times

newspaper stated. The paper stated that funds worth $4 billion fund, which was raised in May

2008, will invest in Isolux which builds roads in north India.


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Investors prefer Indian stocks, a lucrative bargain

Betting on emerging markets could yield lucrative bargains and be safer than standing pat in the

United States and risking a double dip, hedge fund managers said. Investors are now looking for

undiscovered companies so as to make more money rather relying on market which are termed

more efcient.

CONCLUDING REMARKS

The overall performance of the Indian economy in 2009/10 was beyond expectations. The farm

sector which was forecasted to contract showed resilience, growing by 0.2 percent despite the

weak South West monsoon. The non- farm sector also followed the same line with strong per-

formance. It is estimated that the Indian economy would grow at 8.5 percent in 2010/11 and 9.0

percent in 2011/12. In the current scal year, agriculture will grow at 4.5 percent, industry at 9.7

percent and services at 8.9 per cent.

The beginning of the new decade heralds the slow, but steady end of the worst recession in the

past 60 years. Global GDP, after declining by 1.1 per cent in 2009, is predicted to increase by 3.1

per cent in 2010, and 4.2 per cent in 2011, with developing economies growing thrice as fast as

the developed economies.

Disclaimer -All information used in the publication of this report has been compiled from publicly

available sources that are believed to be reliable, however we do not guarantee the accuracy

or completeness of this report. This is not a solicitation or inducement to buy, sell, subscribe, or

underwrite securities or units. This document is provided for information purposes only and should

not be construed as an offer or solicitation for investment. This document has not been prepared

in accordance with the legal requirements designed to promote the independence of investment

research and is not subject to any prohibition on dealing ahead of the dissemination of investment

research. It may be difcult or not possible to buy, sell or obtain accurate information about thevalue of securities mentioned in this report. Past performance is not necessarily a guide to future

performance.

Emerging Markets Opportunities - India

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