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ADVICE for the WISE




    Newsletter – October’10
Index                Page No.

Economic Update           4

Equity Outlook            8

Debt Outlook             17
Forex                     19

Commodities               20

Alternative Assets       21




                                2
Dear Investor,
                                                                                     On debt front, the statement of RBI at the September
 The recent rally in Indian equity markets has been remarkable. It                   announcement of monetary policy has calmed a lot of nerves.
 happened without a significant directional change in growth rate                    RBI effectively stated that the future changes in the monetary
 or nature of growth of the economy. The breakout was effectively                    policy will be driven more by the specific state of affairs at the
 a delayed realization of the strength and hence attractiveness of                   time of decision. This is in contrast to RBI’s stance so far
 Indian companies to domestic as well as foreign investors. While                    which was to bring the interest rates in the economy up to a
 we remain very bullish about the prospects of Indian equities in                    ‘normal’ level to avoid overheating. This normalization seems
 the medium term, the driver of the current rally makes us cautious                  to be over. We expect another 25 bps repo rate hike in
 in the short term. This rally is driven primarily by the foreign fund               November (with potentially a larger hike in reverse repo rate
 inflows – which is also apparent from the sharp appreciation of                     to narrow the rate corridor). That however has been factored
 the Rupee in the recent weeks.                                                      in the long term debt yields. We recommend gradual entry
 However, Indian equities are still far from what can be deemed                      into long tenor debt with the expectation that the rate cycle
 bubble territory. The FY2011 price-to-earnings ratio at 20 remains                  would peak in near future.
 well below previous all-time highs. This keeps the window open                      A fear that is at the back of everyone’s mind is that of a
 for the long term investor to enter the equity markets at the                       double-dip recession in the developed economies. An
 present levels as well. The characteristic of an FII driven rally is                interesting alternative for portfolio construction in such a
 that it typically favors index stocks. This points to an interesting                context is to use a combination of debt and long dated
 investment strategy for investors worried about the ill-effects of FII              options instead of debt and equity with the proportions
 pullout in near future. These investors would do well to find some                  altered suitably to have the same returns in the medium
 non-index alternatives in their preferred sectors – in the large cap                term. This achieves two ends – higher liquidity and more
 space or even the mid-cap space. Another gauge would be to use                      importantly greater safety from extreme events. Such
 the extent of FII interest in a stock as a parameter for evaluation of              portfolios are ‘Black Swan’-proof! In case of a major
 the attractiveness of a stock, thus favoring good stocks with lesser                meltdown, such portfolios tend to lose lesser than their
 FII interest. These are short term measures though and can                          vanilla counterparts since their actual exposure to the risky
 backfire if the FII inflows continue unabated..                                     assets is through a small part of their total value.
“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”                                                                                                                                 3
As on   Change over   Change over    124                                  Sensex                                                      Nifty
                                                                                  119                                  S&P 500                                                     Nikkei 225

                                     Sep 30st 2010    last month      last year   114
                                                                                  109

                      BSE Sensex           20,069         11.7%         17.2%     104

   Equity             S&P Nifty              6,030        11.6%         18.6%
                                                                                   99
                                                                                   94

   markets            S&P 500                1,141         8.8%           8.0%
                                                                                   89
                                                                                   84


                      Nikkei 225             9,369         6.2%         (7.5%)
                                                                                  8.2
                                                                                    8
                                                                                  7.8
                                                                                  7.6
                      10-yr G-Sec Yield    7.85%        (12 bps)        64 bps    7.4
                                                                                  7.2
Debt markets          Call Markets         5.75%          66 bps       275 bps      7
                                                                                  6.8
                                                                                                                                          10 yr G-Sec


                      Fixed Deposit*       7.00%          25 bps        75 bps

                                                                                  20000
                                                                                                                                 Gold Spot
                                                                                  19000
                                                                                  18000

 Commodity            RICI Index            3,361          8.6%         14.1%     17000


  markets             Gold (`/10gm)        19,165          1.3%         22.7%     16000

                      Crude Oil ($/bbl)     79.95          5.9%         21.5%     15000
                                                                                  14000



                                                                                    48
                                                                                  47.5
                                                                                    47
                                                                                                                                `/$
    Forex             Rupee/Dollar          44.92          4.6%          6.5%
                                                                                  46.5
                                                                                    46
                                                                                  45.5

   markets            Yen/Dollar             83.7          1.4%          7.4%       45
                                                                                  44.5
                                                                                    44




                                                                                                                                                                 May-10
                                                                                                                                                        Apr-10
                                                                                                  Oct-09




                                                                                                                                                                          Jun-10
                                                                                                                                                                                   Jul-10
                                                                                                                                                                                            Aug-10
                                                                                                                             Jan-10
                                                                                         Sep-09


                                                                                                           Nov-09
                                                                                                                    Dec-09


                                                                                                                                      Feb-10
                                                                                                                                               Mar-10




                                                                                                                                                                                                     Sep-10
* Indicates SBI one-year FD                                                                                                                                                                                   4
• The Conference Board Consumer Confidence Index which had increased last
              month declined sharply by 4.7 points to a seven month low of 48.5 in
   US         September. The pullback in confidence was due to less favorable business and
              labor market conditions coupled with a pessimistic short term outlook.
            • US m-o-m unemployment rate increased to 9.6 per cent in August 10.

            • Euro-zone purchasing managers index slid to 53.7 from 55.1 in August. This is
              the lowest level in 8 months indicating a cooling of the sector after the
 Europe       buoyant growth rates seen earlier this year.
            • Unemployment in the Euro zone remained stable at 10.1% in August but
              Germany and Austria saw significant improvement with unemployment falling
              to 6.2% in Spain. The unemployment in Spain reached a staggering 20.5%.

            • Japan’s industrial production declined by by 0.3% in August due to decreased
              global demand and a strong Yen. The manufacturing PMI declined to a low of
  Japan       49.5 in September, indicating contraction in the Japanese markets.
            • Japan’s unemployment rate decreased in August 10 (m-o-m) to 5.1% from
              5.2% in July 10. .

            • The HSBC China Manufacturing Purchasing Managers Index, increased to a
              four month high of 52.9 in September from 51.9 in August due to surging
 Emerging     domestic demand.
economies   • China’s GDP is expected to rise 9.5% in 2010 accelerating from 9.1% in 2009.
              The economy grew at 11.9% in the first quarter and 10.3% in the second
              quarter.                                                                        5
IIP monthly data
20.0%                                                                                        • The GDP growth rate for Q1 FY11 came in at 8.8%
18.0%
16.0%                                                                                          backed by a strong growth in manufacturing and
14.0%                                                                                          agricultural output.
12.0%
10.0%
 8.0%                                                                                        • The Manufacturing sector grew by 12.4 per cent
 6.0%                                                                                          during April-June, 2010, against 3.8 per cent in the
        1-Jul 1-Aug 1-Sep 1-Oct 1-Nov 1-Dec 1-Jan 1-Feb 1-Mar 1-Apr 1-May 1-Jun 1-Jul
                                                                                               same period last fiscal while agricultural output
                                                                                               witnessed a growth of 2.8 percent (y-o-y) due to
                                                                                               improved harvests. The services sector saw a
 • Industrial output as measured by the Index of                                               moderated growth over last year with business
   Industrial Production (IIP) grew by 13.8% (y-o-y)                                           services growing at a rate of 8% against 11.8% last
   in July 10 as compared to 7.3% in June 10. The                                              year.
   growth was driven by a 63% growth in the
   Capital Goods sector.                                                                     • The Finance ministry is targeting FY11 growth at
                                                                                              ~8.50% - 8.75%. We believe the current target is
 • Growth in manufacturing, which constitutes                                                 sustainable as we expect manufacturing and
   around 80 per cent of the IIP increased to 15 per                                          service sectors to continue to drive growth in the
   cent for the month over last year.                                                         next few quarters, even as farm output stages a
                                                                                              turnaround.
 • The manufacturing PMI fell to 55.1 in September                                      10
                                                                                                                  GDP growth
   from 57.25 in August indicating a strong growth                                       9
                                                                                         8
   but at a weakening pace.                                                              7
                                                                                         6
 • We believe the growth in IIP will remain robust                                       5
   but will eventually moderate out and may end                                          4
   lower than that seen in the first part of the fiscal.                                     FY09 (Q1) FY09 (Q2) FY09 (Q3) FY09 (Q4) FY10 (Q1) FY10(Q2) FY10(Q3) FY10(Q4) FY11(Q1)

                                                                                                                                                                                     6
Growth in credit & deposits of SCBs
                                               Bank Credit                    Aggregate Deposits
23.0%

21.0%
                                                                                                                 • Inflation as measured by WPI stood at 8.5%
19.0%

17.0%
                                                                                                                   (y-o-y) for the month of August -10 as compared
15.0%                                                                                                              to 9.97% during July 10. These figures are based
13.0%                                                                                                              on the new base year and WPI list.
11.0%

 9.0%

 7.0%                                                                                                            • We expect WPI inflation numbers to moderate
 5.0%                                                                                                              in m-o-m inflation numbers due to the expected
        Aug-09 Sep-09   Oct-09 Nov-09 Dec-09    Jan-10   Feb-10 Mar-10 Apr-10 May-10 Jun-10    Jul-10   Aug-10
                                                                                                                   decrease in food inflation and the monetary
                                                                                                                   tightening stance by RBI. This will also happen
                                                                                                                   due to the base effect coming into play.
  • After ten months of sustained increase, bank credit
    growth decreased in the month of August to 19.4%
    as compared to 19.7% in the month of July 2010.                                                               12.0%
                                                                                                                  10.0%                                       Inflation
  • We expect credit growth to further improve in the                                                              8.0%
    next few quarters and settle at ~20% levels on the
                                                                                                                   6.0%
    back of improving business confidence and decline
                                                                                                                   4.0%
    in risk aversion on the part of banks. Increase in
                                                                                                                   2.0%
    exposure to Infrastructure projects is also expected
                                                                                                                   0.0%
    in the second half of the fiscal.
                                                                                                                                                     Oct-09




                                                                                                                                                                                Jan-10


                                                                                                                                                                                                  Mar-10




                                                                                                                                                                                                                             Jun-10
                                                                                                                                                                                                                    May-10
                                                                                                                                   Aug-09




                                                                                                                                                              Nov-09




                                                                                                                                                                                                           Apr-10




                                                                                                                                                                                                                                               Aug-10
                                                                                                                          Jul-09


                                                                                                                                            Sep-09




                                                                                                                                                                                         Feb-10




                                                                                                                                                                                                                                      Jul-10
                                                                                                                                                                       Dec-09
                                                                                                                  -2.0%


                                                                                                                                                                                                                                                        7
The issues of abundance

Indian equity participants have been pleasantly surprised by the unabated flow of foreign funds, and the month of September set a new
record. These inflows are nothing but a reflection of the attention that India has drawn as a promising emerging market. Despite Sensex
racing ahead, India focused equity funds continued to receive unprecedented magnitude of inflow. As per EPFR Global, around USD 300
mn were received in the week ending September 22, 2010 – the highest ever. These inflows have led to the Indian Rupee rising to a
four-month high, raising discomfort among the policy makers, especially the RBI. Certainly, the central bank is concerned about the
problems it poses for monetary policy. Time and again, various institutions have warned against the destabilizing impact of uncontrolled
foreign inflows. But unlike countries like Brazil and Russia, India runs a trade deficit that is large and growing. The effect of foreign
inflows has been muted so far. But this could change if this flow transforms into an uncontrollable deluge.

                                                                     With still a quarter to go and the recent momentum,
                                                                     FII inflows are expected to touch USD 25 bn for
                                                                     CY10. Anything uncontrollable will trigger policy
                                                                     action.




                                                                 The choice available with the policy makers to is not so straight
                                                                 forward. If the capital flows exceed the absorption capacity of the
                                                                 economy, RBI will either have to let Indian Rupee appreciate, or
                                                                 intervene in the currency markets. The former impacts the exporters
                                                                 while the later leads to excessive supply of Indian Rupee thereby
                                                                 further fuelling inflationary pressures. That is clearly an unenviable
                                                                 position to be in. So even as FII flows drive the markets, we need to be
                                                                 watchful for such a policy action.
                                                                                                                                            8
More of index movement than markets

The move in the market has not been homogeneous. As is the nature of any FII-led rally, this too has been concentrated much more on
the index stocks. Even as Nifty moved up by almost 11.6% in the month of September, Nifty Junior and CNX Midcap have moved by a far
more humble 5.6% each. This could be because of evident caution exercised by the domestic financial institutions and the retail segment.
                                                                                   The frontline index stocks have outperformed mid-
                                                                                   caps by a wide margin.




Market outlook

We believe that despite wholesome valuations and skepticism among the domestic investors, the markets will continue to stay buoyant.
Till such time as FIIs remain the driving force, the large cap businesses will continue to find favor. We also believe that with the rising risk
appetite sectors such as real estate, commodities and financial services will now dominate the next leg of market move. The news flow
from the western world, China and Japan has been positive for some time now but it would be premature to declare all-green. FII flows
are notoriously volatile and a short term correction due to adverse news clip cannot be ruled out. But there is nothing to indicate a large
sized correction that is feared by some sections of the market observers.

Our investment strategy is derived out of our current cautious stance on markets. We believe that current valuations are fair – neither
dirt-cheap, nor prohibitively expensive. Indian markets will continue to be vulnerable to global news flow (from west) despite a strong
domestic economy.                                                                                                                                  9
FII & MF data                                                                                         Sales growth

25000.0                   FII   MF
20000.0

15000.0

10000.0
                                                              • Substantial improvement in sales was witnessed in Q2 & Q3
 5000.0                                                         mainly in consumption oriented sectors of the economy.
     0.0                                                        Current Results by corporates show a strong Sales growth
                                                                for the current quarter while consolidated figures are yet to
 -5000.0
                                                                come.
-10000.0                                                      • We expect improvement in sales in upcoming quarters;
-15000.0                                                        especially in the manufacturing space as domestic demand
                                                                picks up.
                                                                      80




• FIIs invested ` 24,978 Cr. in equities in the month of
                                                                      60
                                                                                                                            Profit growth
                                                                      40


  September alone, driving the markets to 20k levels. The             20




                                                               (% )
  markets also gained throughout the month on cues of
                                                                        0


                                                                      -20   FY07 (Q1)   FY07 (Q2)   FY07 (Q3)   FY07 (Q4)   FY08 (Q1)   FY08 (Q2)   FY08 (Q3)   FY08 (Q4)   FY09 (Q1)   FY09 (Q2)   FY09 (Q3)   FY09 (Q4)



  stable macroeconomic indicators.                                    -40


                                                                      -60




• Mutual Funds sold around ` 6,819 Cr in the month of
  September as Corporates and Banks exited the markets.       • Recent Q3 & Q4 numbers have beaten estimates with
  Banks are currently gaining a higher rate of ~5.75% (Call     higher sales and better operational efficiency aiding profit
  rate) as compared to returns given by Liquid funds.           growth.

                                                              • Margins are expected to remain stable in the following
                                                                quarters as lower interest costs are offset by higher raw
                                                                material costs                                                                                                                                              10
Recommendation      Sector                          Rationale

                               Higher credit growth, well managed NPAs, improved capital market
                    BFSI       activities and expectations of reforms

                 Industrials   Focus on infrastructure spend intact

                               Robust domestic demand, income growth, favorable demographics, rapid
                 Automobiles   urbanization
 Overweight
                               With strong rural demand and good agricultural incomes, we expect the
                   FMCG        sector to continue growing at good volumes

                               Resilient demand in CRAMS, generics opportunity getting better and
                 Healthcare    strong pressure on governments to reduce public healthcare costs

                               An upturn in investment activities bodes well for the sector. The
                   Metals      leverage in the sector has improved for better

                               Volatile currency, rising wages pressure and protectionism noises in the
                     IT        west ask for caution

   Neutral
                               Lower volumes, affordability issues and the leverage on the balance
                 Real Estate   sheets of the companies

                                                                                                          11
Tenets of our investment philosophy
Efficient diversification
• Economic themes
• Sectors                                                          • Capital efficiency
• Companies & groups                                               • Size of opportunity
• Volatility factor                                                • Reasonable gearing
                                                                   • Quality management
                                                                   • Capital allocation

                                                      Quality
                                   Active risk        Focus
                                   mitigation

                                                                  • Fundamental research
                                                 Research         • Analytical rigor
                                                 Intensity        • Margin of safety
• Low churn                                                       • Management meetings
• Long only approach
• No cash calls
• High conviction driven
                                   Long term


                                   Superior compounding
                                                                                           12
Stock Selection       Portfolio        Portfolio Review
                    Construction

  Investment         Investment
                                       Deviation Tolerance
   Universe           Objective

                  Risk quotient band

                      Degree of
                    diversification

                      Portfolio
  Valuations                           Attribution Analysis
                   Psychographics

                   Macroeconomic          Performance
Quality filters
                        View               Appraisal

 Management
   Grading

Buy / sell note


Documentation                          Independent Audit

                                                              13
Basic Theme
A diversified portfolio of stocks that seeks Alpha through superior stock selection. The Portfolio Management adopts a comprehensive
approach and invests across sectors, investment themes and market capitalization categories.

 Portfolio Details                                                                       Absolute Returns (%)
Entry Load        Nil                                                                    Comparatives 3 Month Since Inception
Exit Load         Nil (Full management fee to be levied if redeemed before 1 yr)
Management Fee    1.5% p.a.                                                              Alpha Portfolio       11.59%           23.74%
Profit Share      20% of Outperformance over 12%                                                               13.5%            19.82%
                                                                                         S&P CNX Nifty


 Top 10 Holdings                       Sector Allocation                                 Performance
Reliance Industries       11.2%
                                                                                          25%     Alpha Portfolio         23.74%
State Bank of India       6.5%
                                                     Others                                       Nifty
HDFC                      6.4%                IT      16%
                                                                  Financials                                                       19.82%
                                                                     23%                  20%
ICICI Bank                6.3%                6%
                                         Oil & Gas
Infosys                   6.1%              11%                            Consumer       15%             13.50%
                                                                            Goods
Larsen & Toubro           6.1%                Healthcare                     16%                11.59%
                                                              Capital                     10%
BHEL                      5.6%                   12%
                                                              Goods
                                                               16%
Bharti Airtel             4.4%
                                                                                           5%
Nestle                    4.3%
Titan                     4.2%                                                             0%
Top 10 Stock Concentration 61.1%                                                                          3M        Since Inception (30/11/09)
                                                                                                                                                 14
•   DELTA seeks to invest in a portfolio of mutual funds through a PMS route that aims to would provide higher
    returns than the blended benchmark.

•   The asset allocation between Debt and Equity would be done on the basis of the risk profile of the investor
    (conservative, moderate or aggressive)

•   There is further allocation into sub-asset classes depending on our views on the same

•   The portfolio would be reviewed and rebalanced regularly to maintain the asset allocation and the right
    selection of funds

Asset Allocation for DELTA:


            Asset Class        DELTA Conservative       DELTA Moderate          DELTA Aggressive

              Equity                   43%                    66%                     82%

               Debt                    57%                    34%                     18%



                          15
                                                                                                                  15
Since Inception (29/4/09)
       Portfolios                   6 Months (Absolute)   1 Year (Absolute)
                                                                                              CAGR
      Conservative                         9.3%                19.4%                            36.3%
Market Return Benchmark                    7.9%                12.2%                            26.4%
Absolute Return Benchmark                  3.4%                 7.0%


       Moderate                           12.8%                24.6%                            50.8%
Market Return Benchmark                   10.9%                15.7%                            38.0%
Absolute Return Benchmark                  3.4%                 7.0%


       Aggressive                         15.0%                29.3%                            62.3%
Market Return Benchmark                   12.9%                18.1%                            46.6%
Absolute Return Benchmark                  3.4%                 7.0%
                                                                              *(Returns as on 31st September 2010)

               Asset Class                                             Benchmarks

     Market Return Benchmark: Equity                                     BSE 200
      Market Return Benchmark: Debt                        CRISIL Composite Bond Fund Index
        Absolute Return Benchmark                             SBI 1 year Fixed deposit rate
                                                                                                                     16
9.00            Yield curve
  8.50
                                                         • The benchmark 10 yr G-sec yield decreased
  8.00
                                                           from 7.97% in August to settle around 7.85% in
  7.50
                                                           the month of September.
  7.00


  6.50
                                                         • We believe that future monetary tightening
  6.00                                                     measures are unlikely to have a major impact on
         10.49
         10.99
         11.49
         11.99
         12.48
         12.98
         13.48
         13.98
         14.48
         14.98
         15.48
         15.98
         16.47
         16.97
         17.47
         17.97
         18.47
         18.97
         19.47
         19.96
          0.02
          0.52
          1.02
          1.52
          2.01
          2.51
          3.01
          3.51
          4.01
          4.51
          5.01
          5.50
          6.00
          6.50
          7.00
          7.50
          8.00
          8.50
          8.99
          9.49
          9.99




                                                           the longer end of the yield curve and once the
(%)




                                                           inflation drops, the yields may peak out around
                                                           8% levels. We expect the 10 yr G-sec yields to
                                                           remain in the broad range of 7.5 – 8.5% in the
• We expect yields at the longer end of the yield
                                                           next few quarters.
  curve to remain stable. High inflation, monetary
  tightening and rising credit growth will keep the
  yields at the longer end range bound.                8.2                10-yr G-sec yield
                                                        8

• Due to rising inflationary expectations, there may   7.8


  be further interest rate hike by RBI in the          7.6

                                                       7.4
  November review but will stabilize around 7.5 –
                                                       7.2
  8.5% levels by year end.                              7

                                                       6.8




                                                                                                             17
Category    Outlook                                 Details

                          We recommend short term bond funds with a 6-12 month
                          investment horizon as we expect them to deliver superior
Short Tenure              returns due to high YTM and concerns over credit quality ease
   Debt                   as the economy recovers, thereby prompting ratings upgrade.




                         Positive economic climate has reduced credit risks without a
                         commensurate decrease in credit spreads. Some AA and select
   Credit                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.



                         We expect yields at the longer end of the yield curve to top out
 Long Tenure             soon. Yields may move to the broad range of 7.5– 8.5% in the
    Debt                 next few quarters. As the inflationary pressure settles down
                         towards the end of the fiscal, these may be an attractive
                         investment. We recommend gradual entry into long tenor debt.
                                                                                            18
Rupee movement vis-à-vis other currencies (M-o-M)                                   Trade balance and export-import data
 5.0%                                                                         80                 Export            Import            Trade Balance (mn $)               0
 4.0%                                                                         60                                                                                        -2000

 3.0%                                                                                                                                                                   -4000
                                                                              40
 2.0%                                                                                                                                                                   -6000
                                                                              20
 1.0%                                                                                                                                                                   -8000
                                                                               0
 0.0%                                                                                                                                                                   -10000
                                                                             -20                                                                                        -12000
-1.0%      Euro    Japanese Yen   British Pound   US Dollar   Singapore
                                                                Dollar       -40                                                                                        -14000
-2.0%
-3.0%
                                                                          • Exports for the month of August increased by 22.5% y-o-y
                                                                            while imports increased by 32.2% increasing the trade
                                                                            deficit to USD 13,035 Mn.
•The Rupee appreciated v/s the US dollar in the month of                  140000
 September due to weak data in the U.S. markets.                                                                                         Capital Account Balance
                                                                          90000

• Our medium term view is that the rupee is likely to                     40000
 strengthen further in 2010. Higher interest rates in India
 would attract large capital flows. Moreover the government is            -10000
                                                                                   FY 07 FY 07 FY 07 FY 07 FY 08 FY 08 FY 08 FY 08 FY 09 FY 09 FY 09 FY 09 FY 10 FY 10 FY 10 FY 10
 expected to simplify the rules on foreign inflows to facilitate                   (Q1) (Q2) (Q3) (Q4) (Q1) (Q2) (Q3) (Q4) (Q1) (Q2) (Q3) (Q4) (Q1) (Q2) (Q3) (Q4)
                                                                          -60000
 larger foreign capital inflows in the form of FDI
                                                                          • Capital account balance was positive throughout FY10 and
                                                                            ended at `2,53,058 Cr. for the year.
                                                                          • We expect the capital account balance to remain positive
                                                                            as higher interest rates would make investment in the
                                                                            Indian markets attractive hence drawing investments into
                                                                            the market.
                                                                                                                                                                                     19
20000
                                                                                   19500                                                    Gold Spot
            • India and China will continue to provide the main thrust of          19000
              overall growth in demand, particularly for gold jewellery, for the   18500
                                                                                   18000
              remainder of 2010. Retail investment will continue to be a           17500

Precious      substantial source of gold demand in Europe. Added to this the       17000
                                                                                   16500
              forthcoming festive season in India is expected to keep the          16000
 Metals       demand strong during the seasonally strong 4Q. The ongoing           15500
                                                                                   15000
              nervousness in the global financial market would further aid the




                                                                                                      Oct-09




                                                                                                                                                                                        Apr-10




                                                                                                                                                                                                                                Jul-10
                                                                                                                                                        Feb-10

                                                                                                                                                                      Mar-10


                                                                                                                                                                                                      May-10
                                                                                                                                          Jan-10




                                                                                                                                                                                                                   Jun-10
                                                                                           Sep-09


                                                                                                                 Nov-09

                                                                                                                             Dec-09




                                                                                                                                                                                                                                            Aug-10
                                                                                                                                                                                                                                                       Sep-10
              safe haven buying. Any correction thus should be treated as an
              opportunity to hold this metal.




             • The crude prices increased by 6% (y-o-y) in September. This was
               due to depreciation of the USD, uncertainty in the Global
               markets and reduced inventory levels. During the month, prices         90

               moved between $73-$80 per barrel. These are expected to be             85                                              Crude
Oil & Gas      steady in Q2 due to no significant seasonal demand (Q2 is the
                                                                                      80
                                                                                      75
               maintenance season for refineries)                                     70

             • Natural gas prices are expected to trade lower in Q2 owing to          65

               speculation over weak demand.                                          60




                                                                                                                    Nov 09

                                                                                                                                 Dec 09
                                                                                             Sep 09




                                                                                                                                                                                                                                                     Aug 10

                                                                                                                                                                                                                                                                Sep 10
                                                                                                        Oct 09




                                                                                                                                                                                                 Apr 10




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                                                                                                                                                                                                                                                                         20
Karvy Principal Protected Note Linked to MCX Gold price

Issuer                                                                      Karvy Financial Services Limited
Tenor                                                                       36 / 40 months
Index                                                                       MCX Front Month Futures Gold price
Minimum Investment                                                          Rs. 5,00,000
Principal Protection                                                        100%
Participation Rate                                                          140%
Initial Level                                                               Official Closing level of MCX Front Month Futures Gold Price on DDA
Final Level                                                             Average of Official Closing level of MCX Front Month Futures Gold Price on
                                                                        DDA+1M, DDA+2M, DDA+3M ……..DDA+36M * for all 36 months+
Outcomes at Maturity                                             Note Return
Payoff                                                                  Max { 0%, PR* (Final Level/Initial Level -1)}


    45%                    45% return x 140% participation rate                          63%



    35%                    35% return x 140% participation rate                          49%



   -20%                    Full principal protection below zero                           0%
 This example is for illustrative purpose only and does not constitute a guaranteed return or performance.                                           21
Leveraging breadth of related businesses that KARVY is in
KARVY is an integrated financial services group, with Karvy Private Wealth being one of its arms. The entire
group’s strengths are leveraged to provide end-to-end wealth advice to Karvy Private Wealth clients. For
example, SME clients can receive advice on their personal wealth while also getting investment banking advice
from the I-banking arm of Karvy.

                                Maximum choice of products & services

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

                                          Product-neutral advice

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.

                                            All-India presence
Set to have business in 20 - 25 cities we are poised to cater to families and businesses spread across multiple
cities in India providing them with combined and integrated advice. For one-off services, if required, we can
also leverage KARVY Group’s presence in 400 cities.
                                                                                                                  22
The information and views presented here are prepared by Karvy Private Wealth or other Karvy Group companies. The
information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch
for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss
incurred based upon it.

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

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

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




                                                                                                                                   23
Bangalore                080-26606126

                                 Chennai                  044-45925925

                                 Delhi                    011-43533941

                                 Hyderabad                040-44507282

                                  Kolkata                 033-40515100

                                 Mumbai                   022-33055000

                                 Pune                     020-66048791



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

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

                                                                                                             24

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Karvy Private Wealth - Advice for the Wise (October 2010)

  • 1. ADVICE for the WISE Newsletter – October’10
  • 2. Index Page No. Economic Update 4 Equity Outlook 8 Debt Outlook 17 Forex 19 Commodities 20 Alternative Assets 21 2
  • 3. Dear Investor, On debt front, the statement of RBI at the September The recent rally in Indian equity markets has been remarkable. It announcement of monetary policy has calmed a lot of nerves. happened without a significant directional change in growth rate RBI effectively stated that the future changes in the monetary or nature of growth of the economy. The breakout was effectively policy will be driven more by the specific state of affairs at the a delayed realization of the strength and hence attractiveness of time of decision. This is in contrast to RBI’s stance so far Indian companies to domestic as well as foreign investors. While which was to bring the interest rates in the economy up to a we remain very bullish about the prospects of Indian equities in ‘normal’ level to avoid overheating. This normalization seems the medium term, the driver of the current rally makes us cautious to be over. We expect another 25 bps repo rate hike in in the short term. This rally is driven primarily by the foreign fund November (with potentially a larger hike in reverse repo rate inflows – which is also apparent from the sharp appreciation of to narrow the rate corridor). That however has been factored the Rupee in the recent weeks. in the long term debt yields. We recommend gradual entry However, Indian equities are still far from what can be deemed into long tenor debt with the expectation that the rate cycle bubble territory. The FY2011 price-to-earnings ratio at 20 remains would peak in near future. well below previous all-time highs. This keeps the window open A fear that is at the back of everyone’s mind is that of a for the long term investor to enter the equity markets at the double-dip recession in the developed economies. An present levels as well. The characteristic of an FII driven rally is interesting alternative for portfolio construction in such a that it typically favors index stocks. This points to an interesting context is to use a combination of debt and long dated investment strategy for investors worried about the ill-effects of FII options instead of debt and equity with the proportions pullout in near future. These investors would do well to find some altered suitably to have the same returns in the medium non-index alternatives in their preferred sectors – in the large cap term. This achieves two ends – higher liquidity and more space or even the mid-cap space. Another gauge would be to use importantly greater safety from extreme events. Such the extent of FII interest in a stock as a parameter for evaluation of portfolios are ‘Black Swan’-proof! In case of a major the attractiveness of a stock, thus favoring good stocks with lesser meltdown, such portfolios tend to lose lesser than their FII interest. These are short term measures though and can vanilla counterparts since their actual exposure to the risky backfire if the FII inflows continue unabated.. assets is through a small part of their total value. “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” 3
  • 4. As on Change over Change over 124 Sensex Nifty 119 S&P 500 Nikkei 225 Sep 30st 2010 last month last year 114 109 BSE Sensex 20,069 11.7% 17.2% 104 Equity S&P Nifty 6,030 11.6% 18.6% 99 94 markets S&P 500 1,141 8.8% 8.0% 89 84 Nikkei 225 9,369 6.2% (7.5%) 8.2 8 7.8 7.6 10-yr G-Sec Yield 7.85% (12 bps) 64 bps 7.4 7.2 Debt markets Call Markets 5.75% 66 bps 275 bps 7 6.8 10 yr G-Sec Fixed Deposit* 7.00% 25 bps 75 bps 20000 Gold Spot 19000 18000 Commodity RICI Index 3,361 8.6% 14.1% 17000 markets Gold (`/10gm) 19,165 1.3% 22.7% 16000 Crude Oil ($/bbl) 79.95 5.9% 21.5% 15000 14000 48 47.5 47 `/$ Forex Rupee/Dollar 44.92 4.6% 6.5% 46.5 46 45.5 markets Yen/Dollar 83.7 1.4% 7.4% 45 44.5 44 May-10 Apr-10 Oct-09 Jun-10 Jul-10 Aug-10 Jan-10 Sep-09 Nov-09 Dec-09 Feb-10 Mar-10 Sep-10 * Indicates SBI one-year FD 4
  • 5. • The Conference Board Consumer Confidence Index which had increased last month declined sharply by 4.7 points to a seven month low of 48.5 in US September. The pullback in confidence was due to less favorable business and labor market conditions coupled with a pessimistic short term outlook. • US m-o-m unemployment rate increased to 9.6 per cent in August 10. • Euro-zone purchasing managers index slid to 53.7 from 55.1 in August. This is the lowest level in 8 months indicating a cooling of the sector after the Europe buoyant growth rates seen earlier this year. • Unemployment in the Euro zone remained stable at 10.1% in August but Germany and Austria saw significant improvement with unemployment falling to 6.2% in Spain. The unemployment in Spain reached a staggering 20.5%. • Japan’s industrial production declined by by 0.3% in August due to decreased global demand and a strong Yen. The manufacturing PMI declined to a low of Japan 49.5 in September, indicating contraction in the Japanese markets. • Japan’s unemployment rate decreased in August 10 (m-o-m) to 5.1% from 5.2% in July 10. . • The HSBC China Manufacturing Purchasing Managers Index, increased to a four month high of 52.9 in September from 51.9 in August due to surging Emerging domestic demand. economies • China’s GDP is expected to rise 9.5% in 2010 accelerating from 9.1% in 2009. The economy grew at 11.9% in the first quarter and 10.3% in the second quarter. 5
  • 6. IIP monthly data 20.0% • The GDP growth rate for Q1 FY11 came in at 8.8% 18.0% 16.0% backed by a strong growth in manufacturing and 14.0% agricultural output. 12.0% 10.0% 8.0% • The Manufacturing sector grew by 12.4 per cent 6.0% during April-June, 2010, against 3.8 per cent in the 1-Jul 1-Aug 1-Sep 1-Oct 1-Nov 1-Dec 1-Jan 1-Feb 1-Mar 1-Apr 1-May 1-Jun 1-Jul same period last fiscal while agricultural output witnessed a growth of 2.8 percent (y-o-y) due to improved harvests. The services sector saw a • Industrial output as measured by the Index of moderated growth over last year with business Industrial Production (IIP) grew by 13.8% (y-o-y) services growing at a rate of 8% against 11.8% last in July 10 as compared to 7.3% in June 10. The year. growth was driven by a 63% growth in the Capital Goods sector. • The Finance ministry is targeting FY11 growth at ~8.50% - 8.75%. We believe the current target is • Growth in manufacturing, which constitutes sustainable as we expect manufacturing and around 80 per cent of the IIP increased to 15 per service sectors to continue to drive growth in the cent for the month over last year. next few quarters, even as farm output stages a turnaround. • The manufacturing PMI fell to 55.1 in September 10 GDP growth from 57.25 in August indicating a strong growth 9 8 but at a weakening pace. 7 6 • We believe the growth in IIP will remain robust 5 but will eventually moderate out and may end 4 lower than that seen in the first part of the fiscal. FY09 (Q1) FY09 (Q2) FY09 (Q3) FY09 (Q4) FY10 (Q1) FY10(Q2) FY10(Q3) FY10(Q4) FY11(Q1) 6
  • 7. Growth in credit & deposits of SCBs Bank Credit Aggregate Deposits 23.0% 21.0% • Inflation as measured by WPI stood at 8.5% 19.0% 17.0% (y-o-y) for the month of August -10 as compared 15.0% to 9.97% during July 10. These figures are based 13.0% on the new base year and WPI list. 11.0% 9.0% 7.0% • We expect WPI inflation numbers to moderate 5.0% in m-o-m inflation numbers due to the expected Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 decrease in food inflation and the monetary tightening stance by RBI. This will also happen due to the base effect coming into play. • After ten months of sustained increase, bank credit growth decreased in the month of August to 19.4% as compared to 19.7% in the month of July 2010. 12.0% 10.0% Inflation • We expect credit growth to further improve in the 8.0% next few quarters and settle at ~20% levels on the 6.0% back of improving business confidence and decline 4.0% in risk aversion on the part of banks. Increase in 2.0% exposure to Infrastructure projects is also expected 0.0% in the second half of the fiscal. Oct-09 Jan-10 Mar-10 Jun-10 May-10 Aug-09 Nov-09 Apr-10 Aug-10 Jul-09 Sep-09 Feb-10 Jul-10 Dec-09 -2.0% 7
  • 8. The issues of abundance Indian equity participants have been pleasantly surprised by the unabated flow of foreign funds, and the month of September set a new record. These inflows are nothing but a reflection of the attention that India has drawn as a promising emerging market. Despite Sensex racing ahead, India focused equity funds continued to receive unprecedented magnitude of inflow. As per EPFR Global, around USD 300 mn were received in the week ending September 22, 2010 – the highest ever. These inflows have led to the Indian Rupee rising to a four-month high, raising discomfort among the policy makers, especially the RBI. Certainly, the central bank is concerned about the problems it poses for monetary policy. Time and again, various institutions have warned against the destabilizing impact of uncontrolled foreign inflows. But unlike countries like Brazil and Russia, India runs a trade deficit that is large and growing. The effect of foreign inflows has been muted so far. But this could change if this flow transforms into an uncontrollable deluge. With still a quarter to go and the recent momentum, FII inflows are expected to touch USD 25 bn for CY10. Anything uncontrollable will trigger policy action. The choice available with the policy makers to is not so straight forward. If the capital flows exceed the absorption capacity of the economy, RBI will either have to let Indian Rupee appreciate, or intervene in the currency markets. The former impacts the exporters while the later leads to excessive supply of Indian Rupee thereby further fuelling inflationary pressures. That is clearly an unenviable position to be in. So even as FII flows drive the markets, we need to be watchful for such a policy action. 8
  • 9. More of index movement than markets The move in the market has not been homogeneous. As is the nature of any FII-led rally, this too has been concentrated much more on the index stocks. Even as Nifty moved up by almost 11.6% in the month of September, Nifty Junior and CNX Midcap have moved by a far more humble 5.6% each. This could be because of evident caution exercised by the domestic financial institutions and the retail segment. The frontline index stocks have outperformed mid- caps by a wide margin. Market outlook We believe that despite wholesome valuations and skepticism among the domestic investors, the markets will continue to stay buoyant. Till such time as FIIs remain the driving force, the large cap businesses will continue to find favor. We also believe that with the rising risk appetite sectors such as real estate, commodities and financial services will now dominate the next leg of market move. The news flow from the western world, China and Japan has been positive for some time now but it would be premature to declare all-green. FII flows are notoriously volatile and a short term correction due to adverse news clip cannot be ruled out. But there is nothing to indicate a large sized correction that is feared by some sections of the market observers. Our investment strategy is derived out of our current cautious stance on markets. We believe that current valuations are fair – neither dirt-cheap, nor prohibitively expensive. Indian markets will continue to be vulnerable to global news flow (from west) despite a strong domestic economy. 9
  • 10. FII & MF data Sales growth 25000.0 FII MF 20000.0 15000.0 10000.0 • Substantial improvement in sales was witnessed in Q2 & Q3 5000.0 mainly in consumption oriented sectors of the economy. 0.0 Current Results by corporates show a strong Sales growth for the current quarter while consolidated figures are yet to -5000.0 come. -10000.0 • We expect improvement in sales in upcoming quarters; -15000.0 especially in the manufacturing space as domestic demand picks up. 80 • FIIs invested ` 24,978 Cr. in equities in the month of 60 Profit growth 40 September alone, driving the markets to 20k levels. The 20 (% ) markets also gained throughout the month on cues of 0 -20 FY07 (Q1) FY07 (Q2) FY07 (Q3) FY07 (Q4) FY08 (Q1) FY08 (Q2) FY08 (Q3) FY08 (Q4) FY09 (Q1) FY09 (Q2) FY09 (Q3) FY09 (Q4) stable macroeconomic indicators. -40 -60 • Mutual Funds sold around ` 6,819 Cr in the month of September as Corporates and Banks exited the markets. • Recent Q3 & Q4 numbers have beaten estimates with Banks are currently gaining a higher rate of ~5.75% (Call higher sales and better operational efficiency aiding profit rate) as compared to returns given by Liquid funds. growth. • Margins are expected to remain stable in the following quarters as lower interest costs are offset by higher raw material costs 10
  • 11. Recommendation Sector Rationale Higher credit growth, well managed NPAs, improved capital market BFSI activities and expectations of reforms Industrials Focus on infrastructure spend intact Robust domestic demand, income growth, favorable demographics, rapid Automobiles urbanization Overweight With strong rural demand and good agricultural incomes, we expect the FMCG sector to continue growing at good volumes Resilient demand in CRAMS, generics opportunity getting better and Healthcare strong pressure on governments to reduce public healthcare costs An upturn in investment activities bodes well for the sector. The Metals leverage in the sector has improved for better Volatile currency, rising wages pressure and protectionism noises in the IT west ask for caution Neutral Lower volumes, affordability issues and the leverage on the balance Real Estate sheets of the companies 11
  • 12. Tenets of our investment philosophy Efficient diversification • Economic themes • Sectors • Capital efficiency • Companies & groups • Size of opportunity • Volatility factor • Reasonable gearing • Quality management • Capital allocation Quality Active risk Focus mitigation • Fundamental research Research • Analytical rigor Intensity • Margin of safety • Low churn • Management meetings • Long only approach • No cash calls • High conviction driven Long term Superior compounding 12
  • 13. Stock Selection Portfolio Portfolio Review Construction Investment Investment Deviation Tolerance Universe Objective Risk quotient band Degree of diversification Portfolio Valuations Attribution Analysis Psychographics Macroeconomic Performance Quality filters View Appraisal Management Grading Buy / sell note Documentation Independent Audit 13
  • 14. Basic Theme A diversified portfolio of stocks that seeks Alpha through superior stock selection. The Portfolio Management adopts a comprehensive approach and invests across sectors, investment themes and market capitalization categories. Portfolio Details Absolute Returns (%) Entry Load Nil Comparatives 3 Month Since Inception Exit Load Nil (Full management fee to be levied if redeemed before 1 yr) Management Fee 1.5% p.a. Alpha Portfolio 11.59% 23.74% Profit Share 20% of Outperformance over 12% 13.5% 19.82% S&P CNX Nifty Top 10 Holdings Sector Allocation Performance Reliance Industries 11.2% 25% Alpha Portfolio 23.74% State Bank of India 6.5% Others Nifty HDFC 6.4% IT 16% Financials 19.82% 23% 20% ICICI Bank 6.3% 6% Oil & Gas Infosys 6.1% 11% Consumer 15% 13.50% Goods Larsen & Toubro 6.1% Healthcare 16% 11.59% Capital 10% BHEL 5.6% 12% Goods 16% Bharti Airtel 4.4% 5% Nestle 4.3% Titan 4.2% 0% Top 10 Stock Concentration 61.1% 3M Since Inception (30/11/09) 14
  • 15. DELTA seeks to invest in a portfolio of mutual funds through a PMS route that aims to would provide higher returns than the blended benchmark. • The asset allocation between Debt and Equity would be done on the basis of the risk profile of the investor (conservative, moderate or aggressive) • There is further allocation into sub-asset classes depending on our views on the same • The portfolio would be reviewed and rebalanced regularly to maintain the asset allocation and the right selection of funds Asset Allocation for DELTA: Asset Class DELTA Conservative DELTA Moderate DELTA Aggressive Equity 43% 66% 82% Debt 57% 34% 18% 15 15
  • 16. Since Inception (29/4/09) Portfolios 6 Months (Absolute) 1 Year (Absolute) CAGR Conservative 9.3% 19.4% 36.3% Market Return Benchmark 7.9% 12.2% 26.4% Absolute Return Benchmark 3.4% 7.0% Moderate 12.8% 24.6% 50.8% Market Return Benchmark 10.9% 15.7% 38.0% Absolute Return Benchmark 3.4% 7.0% Aggressive 15.0% 29.3% 62.3% Market Return Benchmark 12.9% 18.1% 46.6% Absolute Return Benchmark 3.4% 7.0% *(Returns as on 31st September 2010) Asset Class Benchmarks Market Return Benchmark: Equity BSE 200 Market Return Benchmark: Debt CRISIL Composite Bond Fund Index Absolute Return Benchmark SBI 1 year Fixed deposit rate 16
  • 17. 9.00 Yield curve 8.50 • The benchmark 10 yr G-sec yield decreased 8.00 from 7.97% in August to settle around 7.85% in 7.50 the month of September. 7.00 6.50 • We believe that future monetary tightening 6.00 measures are unlikely to have a major impact on 10.49 10.99 11.49 11.99 12.48 12.98 13.48 13.98 14.48 14.98 15.48 15.98 16.47 16.97 17.47 17.97 18.47 18.97 19.47 19.96 0.02 0.52 1.02 1.52 2.01 2.51 3.01 3.51 4.01 4.51 5.01 5.50 6.00 6.50 7.00 7.50 8.00 8.50 8.99 9.49 9.99 the longer end of the yield curve and once the (%) inflation drops, the yields may peak out around 8% levels. We expect the 10 yr G-sec yields to remain in the broad range of 7.5 – 8.5% in the • We expect yields at the longer end of the yield next few quarters. curve to remain stable. High inflation, monetary tightening and rising credit growth will keep the yields at the longer end range bound. 8.2 10-yr G-sec yield 8 • Due to rising inflationary expectations, there may 7.8 be further interest rate hike by RBI in the 7.6 7.4 November review but will stabilize around 7.5 – 7.2 8.5% levels by year end. 7 6.8 17
  • 18. Category Outlook Details We recommend short term bond funds with a 6-12 month investment horizon as we expect them to deliver superior Short Tenure returns due to high YTM and concerns over credit quality ease Debt as the economy recovers, thereby prompting ratings upgrade. Positive economic climate has reduced credit risks without a commensurate decrease in credit spreads. Some AA and select Credit 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. We expect yields at the longer end of the yield curve to top out Long Tenure soon. Yields may move to the broad range of 7.5– 8.5% in the Debt next few quarters. As the inflationary pressure settles down towards the end of the fiscal, these may be an attractive investment. We recommend gradual entry into long tenor debt. 18
  • 19. Rupee movement vis-à-vis other currencies (M-o-M) Trade balance and export-import data 5.0% 80 Export Import Trade Balance (mn $) 0 4.0% 60 -2000 3.0% -4000 40 2.0% -6000 20 1.0% -8000 0 0.0% -10000 -20 -12000 -1.0% Euro Japanese Yen British Pound US Dollar Singapore Dollar -40 -14000 -2.0% -3.0% • Exports for the month of August increased by 22.5% y-o-y while imports increased by 32.2% increasing the trade deficit to USD 13,035 Mn. •The Rupee appreciated v/s the US dollar in the month of 140000 September due to weak data in the U.S. markets. Capital Account Balance 90000 • Our medium term view is that the rupee is likely to 40000 strengthen further in 2010. Higher interest rates in India would attract large capital flows. Moreover the government is -10000 FY 07 FY 07 FY 07 FY 07 FY 08 FY 08 FY 08 FY 08 FY 09 FY 09 FY 09 FY 09 FY 10 FY 10 FY 10 FY 10 expected to simplify the rules on foreign inflows to facilitate (Q1) (Q2) (Q3) (Q4) (Q1) (Q2) (Q3) (Q4) (Q1) (Q2) (Q3) (Q4) (Q1) (Q2) (Q3) (Q4) -60000 larger foreign capital inflows in the form of FDI • Capital account balance was positive throughout FY10 and ended at `2,53,058 Cr. for the year. • We expect the capital account balance to remain positive as higher interest rates would make investment in the Indian markets attractive hence drawing investments into the market. 19
  • 20. 20000 19500 Gold Spot • India and China will continue to provide the main thrust of 19000 overall growth in demand, particularly for gold jewellery, for the 18500 18000 remainder of 2010. Retail investment will continue to be a 17500 Precious substantial source of gold demand in Europe. Added to this the 17000 16500 forthcoming festive season in India is expected to keep the 16000 Metals demand strong during the seasonally strong 4Q. The ongoing 15500 15000 nervousness in the global financial market would further aid the Oct-09 Apr-10 Jul-10 Feb-10 Mar-10 May-10 Jan-10 Jun-10 Sep-09 Nov-09 Dec-09 Aug-10 Sep-10 safe haven buying. Any correction thus should be treated as an opportunity to hold this metal. • The crude prices increased by 6% (y-o-y) in September. This was due to depreciation of the USD, uncertainty in the Global markets and reduced inventory levels. During the month, prices 90 moved between $73-$80 per barrel. These are expected to be 85 Crude Oil & Gas steady in Q2 due to no significant seasonal demand (Q2 is the 80 75 maintenance season for refineries) 70 • Natural gas prices are expected to trade lower in Q2 owing to 65 speculation over weak demand. 60 Nov 09 Dec 09 Sep 09 Aug 10 Sep 10 Oct 09 Apr 10 Jul 10 Feb 10 Mar 10 Jan 10 May 10 Jun 10 20
  • 21. Karvy Principal Protected Note Linked to MCX Gold price Issuer Karvy Financial Services Limited Tenor 36 / 40 months Index MCX Front Month Futures Gold price Minimum Investment Rs. 5,00,000 Principal Protection 100% Participation Rate 140% Initial Level Official Closing level of MCX Front Month Futures Gold Price on DDA Final Level Average of Official Closing level of MCX Front Month Futures Gold Price on DDA+1M, DDA+2M, DDA+3M ……..DDA+36M * for all 36 months+ Outcomes at Maturity Note Return Payoff Max { 0%, PR* (Final Level/Initial Level -1)} 45% 45% return x 140% participation rate 63% 35% 35% return x 140% participation rate 49% -20% Full principal protection below zero 0% This example is for illustrative purpose only and does not constitute a guaranteed return or performance. 21
  • 22. Leveraging breadth of related businesses that KARVY is in KARVY is an integrated financial services group, with Karvy Private Wealth being one of its arms. The entire group’s strengths are leveraged to provide end-to-end wealth advice to Karvy Private Wealth clients. For example, SME clients can receive advice on their personal wealth while also getting investment banking advice from the I-banking arm of Karvy. Maximum choice of products & services KARVY Private Wealth offers the widest breadth of products and services, providing clients a variety of options through a single contact. Products and services include equities, debt instruments, commodities, Mutual Funds, Insurance, Structured Products, Financial Planning, real estate advice, etc. Product-neutral advice 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. All-India presence Set to have business in 20 - 25 cities we are poised to cater to families and businesses spread across multiple cities in India providing them with combined and integrated advice. For one-off services, if required, we can also leverage KARVY Group’s presence in 400 cities. 22
  • 23. The information and views presented here are prepared by Karvy Private Wealth or other Karvy Group companies. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended here may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned here, investors may please note that neither Karvy nor any person connected with any associated companies of Karvy accepts any liability arising from the use of this information and views mentioned here. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above-mentioned companies from time to time. Every employee of Karvy and its associated companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd. The information given in this document on tax are for guidance only, and should not be construed as tax advice. Investors are advised to consult their respective tax advisers to understand the specific tax incidence applicable to them. We also expect significant changes in the tax laws once the new Direct Tax Code is in force – this could change the applicability and incidence of tax on investments 23
  • 24. Bangalore 080-26606126 Chennai 044-45925925 Delhi 011-43533941 Hyderabad 040-44507282 Kolkata 033-40515100 Mumbai 022-33055000 Pune 020-66048791 Email: wealth@karvy.com SMS: ‘HNI’ to 56767 Website: www.karvywealth.com Corporate Office : 702, Hallmark Business Plaza, Off Bandra Kurla Complex, Bandra (East), Mumbai – 400 051 24