ADVICE for the WISE     Newsletter –April’11
Index             Page No.Economic Update        4Equity Outlook         8Debt Outlook          13Forex                  1...
Dear Investor, The month of March has seen the return of the positive sentiments to                                       ...
As on   Change over   Change over    130                                      Sensex                                      ...
• The Conference Board Consumer Confidence Index, which had increased in              February, declined in March. The Ind...
IIP monthly data20.0%                                                     • The GDP growth rate for Q2 FY11 came in at 8.9...
Growth in credit & deposits of SCBs                                                        • Inflation as measured by WPI ...
March turned out to be a good month for Indian equity markets. In the first two months of CY11, Nifty ended on a negative ...
Food price inflation in mid-March again touched the double digit levels due to firm price trend seen in protein rich items...
Sector     Stance                                                       Remarks                              We believe in...
Sector        Stance                                                    Remarks                                 Robust vol...
Basic ThemeA diversified portfolio of stocks that seeks Alpha through superior stock selection. The Portfolio Management a...
Yield curve      9.0                                                               • The benchmark 10 yr G-sec yield decre...
Category    Outlook                               Details                          We recommend short term bond funds with...
Rupee movement vis-à-vis other currencies (M-o-M)                           Trade balance and export-import data          ...
Gold prices continue to remain stable amid demand from              22000                                                 ...
Tenor                  36/40 monthsIssuer                 Karvy Financial Services LimitedReference Index        S&P CNX N...
Overview                                                            Product Features•   Aditya Birla has launched a privat...
Asset Classes                             Tier-1*                                                          Tier-II** Resid...
Residential Market Snapshot (Supply and Developers)As you would find out from the below mentioned table, most cities have ...
Pune         Pimpri Chichwad and Chakan,                            93 Mn Sqft, out of which over 70% is   Kumar Builders,...
Leveraging breadth of related businesses that KARVY is inKARVY is an integrated financial services group, with Karvy Priva...
The information and views presented here are prepared by Karvy Private Wealth or other Karvy Group companies. Theinformati...
Bangalore               080-26606126                                  Chennai                 044-45925923                ...
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Advice For The Wise April'11

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The month of March has seen the positive sentiments to the Indian Equity markets and to a smaller extent to the Indian Debt markets.

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Advice For The Wise April'11

  1. 1. ADVICE for the WISE Newsletter –April’11
  2. 2. Index Page No.Economic Update 4Equity Outlook 8Debt Outlook 13Forex 15Commodities 16Real Estate 19 2
  3. 3. Dear Investor, The month of March has seen the return of the positive sentiments to Risk taking investors can evaluate private equity as an interesting the Indian Equity markets and to a smaller extent to Indian Debt and sufficiently diversified investment option. It also has the markets. FIIs poured money into Indian equities thus helping the indices additional positive of enforcing a long term outlook which is often to decisively break out of the range of the earlier months. Part of this lacking in public equity investments that allow entry and exit at rally is genuine catching up of the valuations in light of expected results. will. Private Equity can be thought of as an aggressive play on India Some other factors that contributed to the sentiment were lack of major growth story. This is because in a high growth environment, not negative news on the 2G scam investigation and relatively contained only do several small companies do well to deliver supernormal inflation levels. At the current level, the equity markets seem fairly returns to early investors, the downside risk is also reduced priced. Any quick run-up from here would enter the overvalued significantly for the suboptimal investment choices. territory. As of now, we continue to recommend investing into Indian When markets show some positive momentum, investors often equities. worry that they might buy into an overvalued market. On the other The fortunes of different sectors changed quite rapidly in the last few hand many times investors keep waiting on the sidelines for the months. Banking which went through a rough patch in December last correction that never happens. Principal protected structured year is back to being a favored sector. Real estate showed some signs of products can provide a way out of this by ensuring that the revival last year but has lost steam again owing to corporate governance maximum downside remains at zero while the participation in the concerns. FMCG had performed quite well in the recent months whereas upside is maintained and even enhanced. Often some degree of infrastructure and cyclical sectors like metals lagged behind. Going innovation in these products can allow an investor to take a more forward we believe that equity portfolios can be altered to include more specific view on the market movement – thus enabling aggressive sectors such as metals and infrastructure. In the coming diversification and enhancement of returns for most outcomes of months defensive sectors like FMCG and Pharma may not deliver very market levels in future. good returns. The liquidity crunch of last month has now eased partially. The yields have stayed steady or come down a little. Fixed deposit rates seem to have peaked as some banks have started to cut the FD rates. Most of this indicates that the debt investment returns have hit their maximum and could well be on their way down. For clients looking to invest into debt it is advisable to lock in the higher rates/yields available now.“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. 4. As on Change over Change over 130 Sensex S&P 500 Nifty Nikkei 225 120 Mar 31 st 2011 last month last year 110 100 BSE Sensex 19,445 9.1% 10.9% 90 Equity S&P Nifty 5,833 9.4% 11.1% 80 70 markets S&P 500 1,325 (0.1%) 13.4% Dec-10 Mar-10 Oct-10 Aug-10 Apr-10 Jan-11 Sep-10 Nov-10 May-10 Jul-10 Jun-10 Nikkei 225 9,755 (8.2%) (12.0%) 10 yr Gsec 8.8 8.3 7.8 10-yr G-Sec Yield 7.98% (2 bps) 13 bps 7.3Debt markets Call Markets 9.25% 2.4 bps 4.25 bps 6.8 Fixed Deposit* 8.25% 0 bps 225 bps 22000 21000 20000 19000 Commodity RICI Index 4,275 2.4% 33.6% 18000 17000 Gold markets Gold (`/10gm) 20,760 (0.2%) 27.4% 16000 15000 Crude Oil ($/bbl) 118.6 4% 46% 48 47 `/$ Forex Rupee/Dollar 44.65 1.2% (0.4%) 46 45 44 markets Yen/Dollar 82.86 (1.3%) (11.9%) 43 42 May-… Mar-11 Mar-10 Dec-10 Oct-10 Aug-10 Apr-10 Jan-11 Feb-11 Sep-10 Jul-10 Nov-10 Jun-10* Indicates SBI one-year FD 4
  5. 5. • The Conference Board Consumer Confidence Index, which had increased in February, declined in March. The Index now stands at 63.4 down from 72 in US February. This is due to consumers short term outlook being less favorable than in February . • US m-o-m unemployment rate drops to 8.8 per cent in Mar 11. • Euro-zone PMI declined to 57.6 in March, down from a four-and-a-half year high of 58.2 in Feb 11. All countries saw a slower pace of growth than in February, but France and Germany continued to see strong increase in Europe manufacturing and services-sector output. • Unemployment rate in the Euro zone at 9.9% in Feb 11, compared to 10% in Jan 11 . • The Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 46.4 in March, the lowest since April 2009, down from February’s Japan 52.9, owing to the disrupted supply chains and production operations post the massive earth-quake and Tsunami • Japan’s unemployment rate decreased to 4.6% in Feb 11 from 4.9% in Jan 11 • The HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, remained almost flat at 51.8 in Mar from Emerging 51.7 in Feb.economies • Chinese economy is expected to slow down to grow at 9.6% in 2011.The retail sales rose 15.8% in the first two months of 2011 which was 3.3% lower than December owing to the decline in consumer confidence in recent months. 5
  6. 6. IIP monthly data20.0% • The GDP growth rate for Q2 FY11 came in at 8.9%18.0%16.0% backed by a strong growth in services and14.0% agricultural output.12.0%10.0% 8.0% 6.0% • The agriculture sector, which accounts for nearly 4.0% 17% of GDP, rose 4.4% and this offset the 2.0% 0.0% moderation manufacturing sector growth, where production went up by 9.8%. The services sector too grew at 9.7% during July-September this year, led mainly by finance and real estate as well as trade, hotels, transport and communication• Industrial output as measured by the Index of Industrial Production (IIP) grew by 3.7% (y-o-y) in • The Finance ministry is targeting FY11 growth at January ‘11 as compared to an upward revised 2.7% in December ’10. ~8.50% - 8.75% which may be revised upwards. We believe the current target is sustainable as we expect manufacturing and service sectors to• Capital good output contracted 18.6 percent continue to drive growth in the next few quarters. compared with an expansion of 57.9 percent in the year ago period. 10 9 GDP growth 8• We believe that monthly indicators are not a very 7 efficient way of indicating growth and the lower 6 numbers could also be attributed to higher base 5 4 effect. But, the growth will eventually moderate out. FY09 (Q3) FY09 (Q4) FY10 (Q1) FY10(Q2) FY10(Q3) FY10(Q4) FY11(Q1) FY11(Q2) 6
  7. 7. Growth in credit & deposits of SCBs • Inflation as measured by WPI increased30.0% Bank Credit Aggregate Deposits marginally and stood at 8.31% (y-o-y) for the25.0% month of February -11 as compared to 8.23%20.0% during January 11. Rising oil prices and high15.0% food prices have led to high inflation in the10.0% month. These figures are based on the new5.0% base year and WPI list. Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 • We expect WPI inflation numbers to moderate • Bank credit growth remained stable at 23.2% in the in m-o-m inflation numbers due to the expected month of February while Deposits grew by 16.4% decrease in food inflation and the monetary compared to 15.9% in January 2011. tightening stance by RBI, but increasing fuel prices may be a cause of worry. • Growth of credit demand and tight liquidity had put pressure on the banks to raise their deposit rates,. Though we see liquidity concerns easing, high Wholesale Price Index 12.0% inflationary pressure may lead the RBI to increase 10.0% rates further. 8.0% 6.0% • We expect credit growth to settle at ~20% levels in 4.0% the coming quarters on the back of improving 2.0% business confidence and decline in risk aversion on 0.0% -2.0% Nov-10 Feb-11 Feb-10 Sep-10 Oct-10 May-10 Aug-10 Jul-10 Jun-10 Apr-10 Mar-10 Dec-10 Jan-11 the part of banks. 7
  8. 8. March turned out to be a good month for Indian equity markets. In the first two months of CY11, Nifty ended on a negative note with anoutflow of 9000 crores by FII. This changed in the month of March with a gain 9.4%. FIIs returned in the last week of March with almost9000 cr invested in 7 days. The FII buying was seen across quality large cap names and a few mid-cap ideas.On the macro economic front, consumer demand continues to hold up quite well across both rural and urban India. March witnessedstrong auto sales numbers growth. All manufacturers’ sales surpassed expectations as retail demand continues to remain buoyant withtwo wheeler and four wheeler sales numbers well ahead of expectations.The sector which has seen the most difficult times last year was infrastructure. There were various issues in terms of environmentalclearances, lack of new orders, land acquisition and commodity prices. There seems to be some movement on the first two issues. Lastmonth saw several coal mine development plans being cleared by the environment ministry. A few commodity green field projects alsogot clearances. There was a revival in order announcements by key infrastructure vendors like PGCIL which announced its largest everTransmission & Distribution order of 5000 crores. NHAI is also expected to announce highway development orders to the tune of 2000crores in this quarter. This momentum, if continued, will provide a much needed fillip to infrastructure development of the country andwould be a big positive for the infrastructure stocks. Concerns related to commodity prices and interest rates have already been pricedin by the market. The government also seems keen to press ahead with key reforms and introduced GST and Pension Reform bill inparliament.Crude continues to be a cause of concern with Nymex crude touching 109$/barrel driven by continued unrest in Middle East and NorthAfrica. Fighting continues in Libya with no side emerging as a clear winner. It would be prudent to assume that Libyan supplies would bedisrupted for some time. Saudi Arabia has increased supplies to make up for that. However, concerns remain on the unrest in Yemenand Bahrain spreading to Saudi Arabia which is the world’s largest crude producer. 8
  9. 9. Food price inflation in mid-March again touched the double digit levels due to firm price trend seen in protein rich items like milk,cereals and fish. We now expect WPI inflation in March to cross 8%. We would expect inflation to stay at elevated levels led by firmfood price trends and high commodity prices and average around 7% in Fy12. RBI is expected to announce its forecast for full yearinflation in the May review. We would expect a further hike of 25bps when RBI next meets with a total hike of 50 to 100 bps for FY12.This view would change if there is any big spike in retail fuel prices led by continued upside to global crude prices.The market seems to be trading at reasonable valuations of around 16 times based on FY12 earnings. Further clarity on valuations willemerge once the Q4 results start coming in from second week on April. We believe that in Q4 FY11, we would witness steady earningsgrowth of 17-18% for Nifty companies. Similar to the scenario in Q3FY11, manufacturing sector might face some earningsdisappointments due to high commodity prices and interest rates, but that should get compensated by the increase in earnings ofMetal companies. We would continue to maintain a strict vigil on crude prices and inflationary expectations in the economy. We likesectors with earnings visibility, growth, superior capital efficiency of the businesses & good corporate governance and have maintainedoverweight position on Financials, Metals, Healthcare & Capital Goods. FII & MF data 25000.0 • After pulling out ` 9,400 Cr. in this year (Jan & Feb) FIIs 20000.0 FII MF invested `6898 Cr. in the Indian markets in the month of 15000.0 March’11. High growth prospects in the Indian market are a 10000.0 driver for these investments. 5000.0 0.0 • Mutual Funds invested around ` 459 Cr. in the month of -5000.0 February.-10000.0-15000.0 9
  10. 10. Sector Stance Remarks We believe in a large sized opportunity presented by Pharma sector in India. India’s strength in generics is difficult to replicate due to quality and quantity of available skilled manpower. With the developedHealthcare Overweight world keen to cut healthcare costs, and a vast pipeline of drugs going off-patent, Indian pharma players are at the cusp of rapid growth. Here, we have taken exposure to medium-sized, non-index ideas while trying to play on the opportunity in Generics and CRAMS. The USD 1 trillion Infra opportunity is hard to ignore. Here, we have carefully taken Power sector as our dominant bet over other sub sectors such as ports, roads and telecom infrastructure, because ofE&C Equalweight favorable economics under PPP model. Within power, we focus on the engineering companies over utilities, T&D and other infrastructure owners because of their superior profitability and better competitive dynamics. Financial sector is undeniably the lubricant for economic growth. Whether the growth comes from consumption or investments, credit growth is inevitable. Being a well regulated sector, BFSI in India hasBFSI Overweight good asset quality and capital adequacy ratios. This, when juxtaposed to the growth opportunity available makes an attractive long term opportunity. The exposure is in “discretionary consumption” beneficiaries such as Paints and branded food, as theFMCG Neutral growth in this segment will disproportionately higher vis-à-vis the increase in disposable incomes. This also provides a defensive posture to the portfolio. The regulatory hurdles, competitive pressures and leverage prevent any return to high rofitability levels in the short to medium term. The huge capex incurred in the rollout of 3G services will put furtherTelecom Underweight stress on the already stretched balance sheets. Remain cautious on Sector’s prospects. 10
  11. 11. Sector Stance Remarks Robust volume growth led by some uptick in pricing makes IT an attractive investment. MarketIT/ITES Equalweight share gains led by deeper and wider expansion of global delivery model will drive earnings growth. Best played through Tier I stocks. Demand outlook remains very robust with strong earnings growth despite raw material price hikesAutomobiles Overweight and raging competition. We are more bullish on commercial vehicle and agricultural vehicles segment due to lesser competition and higher pricing power. Through a single company, we have taken a large-sized exposure to refinery and natural gas exploration sector. The regulatory cap on RoE does not allow a vast value creation opportunity inEnergy Underweight the infrastructure owning companies. We have also purposely tried to stay away from PSUs, due to issues of cross subsidization distorting the underlying economics of oil exploration and refinery businesses. Indian metal companies will benefit from global upturn in demand. Commodity prices haveMetals Equal weight moved up significantly as recovery takes place in US and Europe. Positive on the producers of Steel, Copper and Aluminium. Cement demand will certainly grow over the next three years. But the issue is on the supply side.Cement Underweight We do see an oversupply situation for the next 3-4 quarters. We like the growth prospects of power sector but believe that value will be created byPower Utilities Underweight engineering services providers. Merchant power rates have been sliding downwards and coal prices have been on the way up putting pressure on return ratios. 11
  12. 12. Basic ThemeA diversified portfolio of stocks that seeks Alpha through superior stock selection. The Portfolio Management adopts a comprehensiveapproach and invests across sectors, investment themes and market capitalization categories. Portfolio Details Absolute Returns (%)Placement fee 2% Comparatives 3 Month Since InceptionExit Load Nil (Full management fee to be levied if redeemed before 1 yr) 2.5% for investments 2% for investments Alpha Portfolio -6.4% 17.0%Management Fee NIL below Rs. 1 Cr. above Rs. 1 Cr. -4.9% 11.7% S&P CNX NiftyProfit Share NIL NIL 15% of all gains Top 10 Holdings Sector Allocation Performance (as on 31st Mar 2011)Reliance Industries Ltd. 8.5 20% 6.8 17.0%Infosys Technologies Ltd. Energy Metals BFSI Alpha Portfolio Nifty 7.9% 26.5%HDFC 6.4 8.5% 15% Others 11.7%Punjab National Bank 5.9 11.0%State Bank of India 5.8 IT 10% 6.8%Titan Industries Ltd. 5.3 FMCG Capital 18.3% Goods 5%Nestle India Ltd. 5.1 Pharma 13.0% 7.9%Larsen & Toubro Ltd. 5.1 0%Bharat Heavy Electricals Ltd. 4.9 3M Since Inception (30/11/09)Page Industries 4.5 -5% -4.9%Top 10 Stock Concentration 58.3 -6.4% -10% 12
  13. 13. Yield curve 9.0 • The benchmark 10 yr G-sec yield decreased 8.5 marginally from 8.0% in the month of February 8.0 ‘11 to close at around 7.98% in February ‘11. 7.5 • With no respite from the high inflation in spite 7.0 of monetary tightening, it is possible that RBI 6.5 may take a stand that the monetary tightening is(%) 1.0 7.1 13.2 18.3 19.3 0.0 2.1 3.1 4.1 5.1 6.1 8.2 9.2 10.2 11.2 12.2 14.2 15.3 16.3 17.3 unlikely to bring down food inflation in a direct manner. • We expect yields at the longer end of the yield curve to remain stable. High inflation, monetary 8.4 10-yr G-sec yield tightening and rising credit growth will keep the 8.2 yields at the longer end range bound. 8 7.8 • After the rate hike by RBI in Mar, the 10 year G 7.6 7.4 Sec yields are trading around 8.0% from 8.15 7.2 levels in Jan 2011. If the inflation continues to be 7 high, there may be another increase in the 6.8 interest rates by RBI. 13
  14. 14. Category Outlook Details We recommend short term bond funds with a 6-12 month investment horizon as we expect them to deliver superiorShort Tenure returns due to high YTM. We have seen the short term yields Debt harden due to reduced liquidity in the market and consecutive rate hikes prompted by inflationary pressures. Hence, Short term bond funds and FMPs provide an interesting investment option. Some AA and select A rated securities are very attractive at the current yields. A similar trend can be seen in the Fixed Credit Deposits also. Tight liquidity in the system has also contributed to widening of the spreads making entry at current levels attractive. With tight liquidity and inflationary pressure being high, we expect more rate hikes in the current year. As the inflationary Long Tenure pressure begins to settle down, these may be attractive Debt investments but currently, we would recommend staying out of the longer term investments. 14
  15. 15. Rupee movement vis-à-vis other currencies (M-o-M) Trade balance and export-import data 80 0 Export Import Trade Balance (mn $) 60 40 -5000 20 -10000 0 -20 -15000 • Exports for the month of February increased by 49.7% (y-o-y) while imports increased by 21.2% over last year. The trade deficit increased to USD 8.1 bn. 140000 120000 Capital Account Balance 100000 80000•The rupee appreciated against all the currencies except the 60000euro. 40000 20000•The appreciation was on the back of improved performance of 0 FY 09 (Q4) FY 10 (Q1) FY 10 (Q2) FY 10 (Q3) FY 10 (Q4) FY 11 (Q1) FY 11 (Q2) FY 11 (Q3)the Indian equity markets and inflow of funds in to thedomestic markets • Capital account balance continues to be positive through•Going forward, the rupee will be helped by the narrowing of FY11 and stands at `241293 Cr. for the Q1 – Q3.the current account deficit and the inflow of funds into the • We expect the capital account balance to remain positivedomestic markets. However rising oil prices remains a concern. as higher interest rates would make investment in the Indian markets attractive hence drawing investments into the market. 15
  16. 16. Gold prices continue to remain stable amid demand from 22000 Gold 21000 emerging economies including China, where the investment 20000 demand growth was strongest last year. The global political 19000Precious uncertainty and growing Middle East tensions shall continue to 18000 17000 Metals support prices. Further, the seasonal demand during Akshaya 16000 15000 Tritiya in India is likely to support prices. Nevertheless, we do May-10 Mar-10 Mar-11 Apr-10 Aug-10 Sep-10 Feb-11 Jun-10 Nov-10 Dec-10 Oct-10 Jul-10 Jan-11 not expect any sharp spikes in the yellow metal in the near term; however the falling dollar is a concern and shall push the metal prices higher. 120 Crude Although the Middle East status quo remains, crude oil prices 110 found support from the renewed demand for conventional 100 energy after the Japanese Nuclear fiasco. The difference 90Oil & Gas between WTI and Brent continues to wide. Crude is expected 80 70 to remain stable in the near term amid declining dollar aiding 60 its rise. May 10 Mar 10 Mar 11 Apr 10 Aug 10 Sep 10 Feb 11 Jun 10 Nov 10 Dec 10 Oct 10 Jul 10 Jan 11
  17. 17. Tenor 36/40 monthsIssuer Karvy Financial Services LimitedReference Index S&P CNX Nifty IndexPrincipal Protection 100%Initial Fixing Level Official Closing level of S&P CNX Nifty Index as on DDAFinal Fixing Level Average of Official Closing Level of S&P CNX Nifty Index as on 34M, 35M and 36MExit Nifty Level Official Closing level of S&P CNX Nifty Index as on DDA +36MParticipation Rate 200%Knockout Level 150% of Initial Fixing LevelKnockout Rebate 30% 2 * Max {0, (Final Fixing Level / Initial Fixing Level) -1}, if Knockout event is notPayoff triggered 17
  18. 18. Overview Product Features• Aditya Birla has launched a private equity fund targeting • Fund size: Rs. 350 Cr. + green shoe option of Rs. 150 Cr. innovation themed growth capital investments within sunrise • Sponsor Commitment: 10% sectors – Lifestyle, Lifeskills and Education, Lifecare and • Fund tenure: 6 years with an option of a 1 year extension Applied Technologies. • Commitment Period: 30 Months from date of initial closing • Minimum Commitment: 1,000,000Attractiveness • Indicative Draw-down:• We believe that the sectors that they have selected are INR 10 lakh 100% attractive growing annually at 20% plus supported by benefits INR 15 lakh–45 lakh Higher of 20% of commitment or of higher disposable income and improving infrastructure in INR 7.5 lakh the country. > INR 45 lakh 10% of commitment• The managers have had a successful track record in similar sectors and have delivered consistent returns. Operational • Expected IRR: 25% gross p.a. value addition and domain knowledge would be the drivers of • Upside Sharing: 20% of net profits of the fund with catch up IRR. • Management fee: 2% p.a. of the total commitment amount• Based on the Investment team’s extensive business network in • Setup fee : 2.25% upfront overweight sectors 60 high quality early stage proposals have been received over the last 12 months 18
  19. 19. Asset Classes Tier-1* Tier-II** Residential This sector is the only one to be left out of the correction These cities still manage to sell from the attractive entry point wrath. Heavy media reporting’s on probable correction, 40% (Avg. Rs.2800-3600 per sqft) but are getting over-supplied in down-trend in sales and unavailability of finance to pockets. A recent report from Knight Frank suggests that these developers are the major factors putting pressure on this cities have seen lot of investor confidence between 2007-2009 segment to correct. The investor community also varies on which for some reasons have seen 30% down-trend. Typically the assumptions on account of bad sales and gives their “no the investor’s early buy-in and upfront payment of the total confidence motion” towards any visible appreciation. Markets consideration for best discount gives the developer strong hold like NCR, Pune, Hyderabad and Chennai would set the course time for local demand. Ironically, across markets Investors of correction on the forthcoming over-supply. contribute not more than 15% of sales.Commercial/IT Still in the shadows of over-supply and cautious expansion Commercial segment not that significant, but unlike Tier-I the approach by corporate, this segment has gone through price differentiation is double favoring commercial since most correction. Rates per sqft have seen almost 30% down-trend of them are in CBD areas. and will be stagnant for the coming 2-3 quarters. Surely, the segment is at the down-tip of the cycle, and is the best opportunity for companies looking for long term holding of real estate office space. Since most of the commercial growth had happened in 05-06, many lease agreements are getting expired giving way for companies to shift base, re-negotiate, etc. IT/ITEs would remain the main driver for consumption. Retail Sales have definitely recovered but distress in the over- Unlike the Tier 1 markets the retails is unable to cope with sales supplied market is evident. Many deals have been done on and thus the sales to rent ratio is becoming bigger pulling down Revenue Share, giving more control to the Lessee to hold the rent paying capacity. Important point also is that, unlike the price per sqft for a longer time-frame Tier 1 markets more than 40% of any mall in these cities are operated by local franchisees making cash-flows not regulated Land Land is highest in demand and still a maintaining a steady Very similar to the trend in Tier 1 cities. Opportunistic growth of 15-20% per annum investment can really give great returns since N.A land is still available cheap (between 200-300 per sqft) 19
  20. 20. Residential Market Snapshot (Supply and Developers)As you would find out from the below mentioned table, most cities have supply concentrated in a particular zone and investment in these zones would belucrative (entry point being low) with a long term view, since the supply would always keep the capital value appreciating to 5-7% per annum. Rest zoneswould be always speculative and demand led behavior. The only differentiator would be quality development which could command premium. Markets Major Locations/Zones Total Sqft (In Mn), Expected in Established Builders 2011-2013 Bangalore Hebbal, Whitefiled, Hosur Road, Jayanagar, MG Road, 74Mn Sqft, out of which 60% supply is Shobha, Prestige, Salarapuria, Malleshwaram in Hosur & Whitefiled followed by 18% Purvankara, Brigade Group, Nitesh in Hebbal Estate, Mantri, Confident group, Pride Group NCR Gurgaon - DLF city, Sohna Rd, Manesar 436 Mn sqft, out of which Noida-32%, Parsavnath, Emaar MGF, DLF, Unitech, Ghaziabad-21%, Gurgaon-24% & Ansal properties, M2K, Uppal, Cosmos, Noida – Sec 14,15,92,93,128 and Greater Noida Faridabad-12%. Suncity, Vipul Ghaziabad – Indirapuram, Vaishali Faridabad – prime chandanwood village, Sec 78,89 Mumbai Prime Residential Among Zones 183 Mn Sqft, out of which 69% is Hiranandani Developers Pvt Ltd, accounted from Prabhadevi, Ghatkopar, Marathon Realty Pvt Ltd, Akruti City Napean Sea Road, Tardeo, Worli, Lower Parel, Bandra, Goregaon, Malad, Gorbunder, kalyan, Ltd, Kalpataru Ltd, K Raheja Universal Andheri West, Juhu and Powai Dombivili, Belapur and Panvel. Pvt Ltd, K Raheja Corp, Lokhandwala Malad/Goregaon accounts for more Group of Companies, Sheth, Mid Segment Among Zones than 23mn sqft and other btw 10-12Mn Rustomjee, DB Realty, Godrej Prabhadevi, Ghatkopar, Goregaon, Malad, Gorbunder, sqft properties, Oberoi to name a few. Kalyan, Dombivili, Belapur and Panvel Hyderabad Banjara hills, Shameerpet, Securabad Contonment, 58 Mn sqft, out of which 58% supply is DLF, Jayabheri, Manjeera, Mantri, Ghatkesar, Old Hyderabad and Shamshabad expected in and around Hi-Tech city Saisree, SMR Holdings, Aliens Group 20
  21. 21. Pune Pimpri Chichwad and Chakan, 93 Mn Sqft, out of which over 70% is Kumar Builders, Gera, Lunkad, accounted by Pimpri Chinchwad, Konark, Goel Ganga, Marvel, Hinjewadi, Baner, Audh, Wakad and Balewadi Hinjewadi and Kalyani Nagar zones Magarpatta, Rohan Kothrud, Kondwa, Hadapsar, Central Pune Kalyani Nagar, Viman Nagar, Kharadi Kolkata CBD Areas-Ballygaunge, Carmac street and Park street 55Mn Sqft, out of which North 24 Ekta Developers, Eden group, Fort, Parganas accounts for more than 50% Mayfair, Merlin, Srijan group, Salt Lake & EM Bypass of supply Swastic, Somani, Godrej, GM Group, North 24 Parganas-Rajarhat, Barasat, madhyamgram nangalia, Orbit, Bengal Sharachi, Sriji Developers South 24 Parganas – narendrapur, Sonarpur Batanagar & Mahestala Chennai North Chennai – Ayanavaram, Kilpauk, Korathur, 68 Mn Sqft, of which South Chennai Emmar, Ozone, Chaintanya, Mantri, madhavaram, Perambur, Villivakam accounts for 64% of supply Doshi, Sabari, Hiranandani, L&T, South Chennai – Adambakam, Chromepet, madipakkam, Unitech Medavakkum, Sholinganur, OMR, Selaiyur, tamabaram, Urapakam, Velachery West – Ambattur, Annanagar, Avadi, KK Nagar, manapakam, Nolambur, Porur, salingramam, Sriperumpudur, Vadapalani Central – Adayar, Alwarpet, Egmore, mataliyapuram, Nungampakkam, Parry’s, TnagarPlease Note:1.Tier I* markets include Mumbai, Delhi & NCR, Bangalore, Pune, Chennai, Hyderabad and Kolkata2.Tier II* markets includes all state capitals other than the Tier I markets3.The IC note is proposed to be presented every quarter 21
  22. 22. Leveraging breadth of related businesses that KARVY is inKARVY is an integrated financial services group, with Karvy Private Wealth being one of its arms. The entiregroup’s strengths are leveraged to provide end-to-end wealth advice to Karvy Private Wealth clients. Forexample, SME clients can receive advice on their personal wealth while also getting investment banking advicefrom the I-banking arm of Karvy. Maximum choice of products & servicesKARVY Private Wealth offers the widest breadth of products and services, providing clients a variety of optionsthrough a single contact. Products and services include equities, debt instruments, commodities, Mutual Funds,Insurance, Structured Products, Financial Planning, real estate advice, etc. Product-neutral adviceWe 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 presenceSet to have business in 20 - 25 cities we are poised to cater to families and businesses spread across multiplecities in India providing them with combined and integrated advice. For one-off services, if required, we canalso leverage KARVY Group’s presence in 400 cities. 22
  23. 23. The information and views presented here are prepared by Karvy Private Wealth or other Karvy Group companies. Theinformation contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouchfor the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any lossincurred based upon it.The investments discussed or recommended here may not be suitable for all investors. Investors must make their owninvestment decisions based on their specific investment objectives and financial position and using such independent advice,as they believe necessary. While acting upon any information or analysis mentioned here, investors may please note thatneither Karvy nor any person connected with any associated companies of Karvy accepts any liability arising from the use ofthis information and views mentioned here.The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above-mentionedcompanies from time to time. Every employee of Karvy and its associated companies are required to disclose their individualstock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investmentrecommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation haseither been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders onlythrough Karvy Stock Broking Ltd.The information given in this document on tax are for guidance only, and should not be construed as tax advice. Investors areadvised to consult their respective tax advisers to understand the specific tax incidence applicable to them. We also expectsignificant changes in the tax laws once the new Direct Tax Code is in force – this could change the applicability and incidenceof tax on investments 23
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