JPMorgan - ValueNotes Investor Confidence Index Wave VII, March 2010

J.P. Morgan Asset Management – ValueNotes
Investment Confidence Index – Wave VII, March 2011
…India‟s only Investor and Advisor focused sentiment indicator

J.P. Morgan Asset Management – ValueNotes Investment Confidence Survey – March 15th to March 29th, 2011

J.P. Morgan Asset Management Standard Template 2009.ppt

J.P. Morgan Asset Management – ValueNotes Investment Confidence Index

 Background

 Introduction to the indices

 Survey methodology

 Respondent profile

 Investor and advisor confidence – Key findings

 Investment activity – Retail investors and corporate treasuries

 Other sentiment influencers

1


Background

 The inaugural Investor Confidence Index was launched in the UK in the early 1990s

 Subsequently launched in Germany, France and other European countries

 In Asia, similar Investor Confidence Indices launched by the firm in Hong Kong, Japan and Taiwan

 The Hong Kong Investor Confidence Index has just completed its 18th wave (4Q 2010) and continues to evoke
much interest

 The J.P. Morgan Asset Management – ValueNotes Investment Confidence Index (ICI) was launched in India in
July 2009

2


J.P. Morgan Asset Management – ValueNotes
Investment Confidence Index

 The definitive indicator of investment confidence levels across key investment centers

 Focused on three important investor segments: retail investors, corporates and the advisor community
(distributors)

 Key objectives
– To quantify confidence in the investment environment
– To study investment behavior and sentiment over time based on key factors
– To evaluate trends in such behavior
– To study short-term and long-term changes in investment outlook

3


Quarterly indices tracking sentiment across the investment community

 Investment Confidence Index: A composite index reflecting the combined sentiment of retail investors,
corporates and distributors

 Retail Investor Confidence Index: Based on a survey of retail investors across India

 Corporate Investor Confidence Index: Based on a survey of corporate treasuries across India

 Advisor Confidence Index: Based on a survey of distributors of financial products
– Banks, National/Regional Distributors (N/RDs) and Independent Financial Advisors (IFAs)

4


Survey Methodology: face to face, online and telephonic interviews

 Screener questions capture respondent profile

 Six „index‟ questions - capture respondents‟ confidence, over the next six
Delhi
months
1) Improvement in the Indian economic situation
Ahmedabad Kolkata
2) Improvement in the general Investment market environment and atmosphere
3) Improvement in the global economic situation Mumbai Pune

4) Increase in the BSE Sensex Hyderabad

5) Appreciation in personal/clients‟ investment portfolio Bengaluru
Chennai
6) Increase in personal/clients‟ investments

 Other sentiment drivers

5


Index Construction Methodology
Indices constructed in a similar manner from the six “Index” questions posed to all

 Each Index question assigned a point between 0 and 200

Extremely Unlikely Somewhat Unlikely More or Less the Same as Current Somewhat Likely Extremely Likely

0 50 100 150 200

 All six Index questions carry equal weight

 Investment Confidence Index equally weights retail, corporate and advisor indices

 Advisor Confidence Index equally weights the Bank Confidence Index, N/RD Confidence Index and the IFA
Confidence Index

6


Respondent Sample – Wave VII, March 2011
 84.9% of retail investors invested in stocks and/or mutual funds over the last 12 months

IFAs Banks NRDs
Category Retail Corporate
(Advisors) (Advisors) (Advisors)

Number of respondents 1,630 50 244 20 20

City Delhi / NCR Mumbai Kolkata Chennai Bengaluru Pune Hyderabad Ahmedabad
Retail 12% 14% 12% 12% 12% 13% 12% 13%
IFAs 14% 13% 12% 12% 12% 12% 13% 12%
Corporate 24% 36% 10% 4% 10% 12% 2% 2%

Wallet Size
2 to 5 lakhs 5 to 10 lakhs 10 to 25 lakhs 25 to 50 lakhs 50 lakhs +
(INR)
Retail 27% 32% 22% 11% 8%

Treasury size 10 lakhs to 1 1 crore to 50 50 to 150 150 to 500
500 crores +
(INR) crore crores crores crores
Corporate 10% 12% 10% 12% 56%

7

Investor and Advisor Confidence, Wave VII, March 2011
- Key Findings

8


Investment Confidence Index (ICI) slumps to an all-time low
 Investment Confidence Index stands at 132.3 in March 2011, down 14 points from last quarter

 Touches lowest level since inception in July 2009

Investment Confidence Index
135.9
Jul 2009
146.4
Sep 2009
141.2
Feb 2010
140.4

Jun 2010
145.4
Sep 2010
146.3
Dec 2010
132.3
Mar 2011

0 50 100 150 200

9


India Inc. turns cautious
 Confidence dips across all investor categories; retail investor takes the biggest beating of 17.5 points

Retail vs. Corporate vs. Advisors
Neutral
138.3
145.1
147.1
Retail 151.7
Jul 2009
160.1
159.5
Sep 2009
142.0

133.5 Feb 2010
142.5
130.7 Jun 2010
Corporate 134.0
131.8 Sep 2010
132.2
Dec 2010
Corporate confidence lowest in March 2011 123.5

136.0 Mar 2011
151.7
145.9
Advisor 135.4
144.1
147.2
131.5

50 100 150 200
Somewhat Unlikely More or Less the Same as Current Somewhat Likely Extremely Likely

10


Advisors gung-ho on clients’ increasing investments
 Retail investors (146) seem more optimistic than corporates (130) and advisors (129) about the Indian economy

 Corporate investors (107) and advisors (110) don‟t expect an improvement in the global economic environment
Neutral
149
Improvement in Indian
130
economic situation
129
142
Improvement in investment market
116
environment and atmosphere Retail
123
133
Improvement in global
107 Corporate
economic environment
110
141
Advisor
Increase in BSE Sensex 117
132
142
Appreciation in
135
investment portfolio
138
144
Change in amount
136
of investments
157

50 100 150 200

11


Confidence plunges across all categories of advisors
 N/RDs hit an all-time low with a confidence level of 125.8 points, fall 21.4 points

IFAs vs. Banks vs. N/RDs
Neutral
134.9
150.2
145.7
IFA 139.7
156.9
146.9 Jul 2009
139.0
Sep 2009
137.9
Feb 2010
157.5
149.6 Jun 2010
Banks 139.6
135.0 Sep 2010
147.5
Dec 2010
129.6
Mar 2011
135.0
147.2
142.5
N/RDs 126.9
140.4
147.2
125.8

0 50 100 150 200

12


Advisors still hopeful that clients will increase investments
 N/RDs (165) and IFAs (164) expect higher client inflows than Banks (143)

Improvement in Indian economic situation 137
130
120

Improvement in investment market 138
118 IFA
environment and atmosphere 113

Improvement in global 116
115
economic environment 100 Banks
137
Increase in BSE Sensex 135
123

Appreciation in 142 N/RDs
138
investment portfolio 135

Change in amount 164
143
of investments
165
139
Advisor Confidence Index 130
126

50 100 150 200


13


Corporate confidence from the Retail & Hospitality sector slumps
 Confidence among corporates in the manufacturing sector on the rise (130) while among the retail investors it
slips 10 points this quarter

 Corporate confidence from the BFSI and Services sectors has been on the decline since June „10
200 Retail confidence (Jun 2010) -152 Retail confidence (Sep 2010) -160 Retail (Jun 2010) Retail (Sep 2010)
Retail confidence (Dec 2010) -160 Retail confidence (Mar 2011) - 142 Retail (Dec 2010) Retail (Mar 2011)
163 163 163 159 161 160 161 161
152
159 155 161 162 159 159 156
160 150 149 149 145
139 143 145 140 137 147
137
132
120

80
IT/BPO/Outsourcing Realty & Infrastructure Manufacturing Retail & Hospitality Medical/BioTech. BFSI Services

200 Corporate confidence (Jun 2010) -134 Corporate confidence (Sep 2010) -132 Corporate (Jun 2010) Corporate (Sep 2010)
Corporate confidence (Dec 2010) -132 Corporate confidence (Mar 2011) -124 Corporate (Dec 2010) Corporate (Mar 2011)
167
154 157 153
160 150 146 149 146
136 142 138 142 138
135
128 127 123 122 126 130 120
127 122
119
114 117
120 108
96

80
IT/BPO/Outsourcing Realty & Infrastructure Manufacturing Retail & Hospitality Medical/BioTech. BFSI Services

14


Confidence falls in all cities; IFAs from Chennai and Hyderabad only
exceptions
 Chennai investors (152) and IFAs (159) most confident

 Retail confidence in Pune takes the biggest plunge of 40 points in March 2011, keeping the investors wary

200 Retail Confidence (Jun 2010) -152 Retail Confidence (Sep 2010) -160 Retail (Jun 2010) Retail (Sep 2010)
Retail Confidence (Dec 2010) -160 Retail Confidence (Mar 2011) - 142 Retail (Dec 2010) Retail (Mar 2011)
165 169 162 176 163 177 168
156 159 151 163 165 159 156 152 160
160 153 149 151 149 152
147 147 147 152 150
144 136
130 133 135
129
120

80
Delhi / NCR Mumbai Kolkata Chennai Bengaluru Pune Hyderabad Ahmedabad

200 IFA Confidence (Jun 2010) - 134 IFA confidence (Sep 2010) - 139 IFA (Jun 2010) IFA (Sep 2010)
IFA Confidence (Dec 2010) -132 IFA confidence (Mar 2011) - 124 IFA (Dec 2010) IFA (Mar 2011)
166 162
159 156 154 158 152 157 152 156
160 143
150 145 146 144
150 146 146 150 142 146
139 137 134 139 138
136 130 131 135 133
126
120

80
Delhi / NCR Mumbai Kolkata Chennai Bengaluru Pune Hyderabad Ahmedabad

15


Uncertainty looms large among older investors
 Investors aged 60 to 65 record lowest confidence ever (124) while investors aged 55 to 60 years see the
sharpest decline of 26 points over December 2010

 Middle aged investors (40 – 45 years) are most confident at 149 points

170 Retail Confidence (Jun 2010) - 152 Retail Confidence (Sep 2010) - 160
Retail Confidence (Dec 2010) -160 Retail Confidence (Mar 2011) - 142 Jun 2010 Sep 2010 Dec 2010 Mar 2011

161 162 164 161 160 161
159 159160 160
160 159 157 157 158
156 157 155
154 154 153 155
153151
149
150
147
143
143
140 142 141
140 138 140
136
132
130
125 124

120
Age 22 to 25 Age 25 to 30 Age 30 to 35 Age 35 to 40 Age 40 to 45 Age 45 to 50 Age 50 to 55 Age 55 to 60 Age 60 to 65

16


Wallet-size does not appear to influence confidence
 Retail investors of all wallet sizes continue to exhibit similar confidence levels ranging between 138 and 144
after sentiment drops from December 2010 levels for all

 Smaller Investors (INR 2 to 5 lakhs) slump the most and to the lowest to stand at 138 points

Retail Confidence (Jun 2010) - 152 Retail Confidence (Sep 2010) -160 Jun 2010 Sep 2010
180 Retail Confidence (Dec 2010) -160 Retail Confidence (Mar 2011) - 142 Dec 2010 Mar 2011

161 162 162 161 162
159 158 160 160 159
160
154 152 153
151
148 146
142 144 144
140 138

120

100
INR 2 to 5 lakhs INR 5 to 10 lakhs INR 10 to 25 lakhs INR 25 to 50 lakhs INR 50 lakhs and above

17


Fewer investors expect both – more income and additional investments
 Investors this quarter are less confident about their income increasing as well as increase in their investments
(58%), down by 11 percentage points as compared to December 2010

4
Increase / Decrease in amount of

Increase
3% 3% Jun 2010
1% 1% 10% 8% 11% 15% 64% 74% 69% 58%
investments

2
Sep 2010
Same
2% 2%
1% 1% 9% 7% 7% 11% 8% 7% 10% 10% Dec 2010
1

Decrease
Mar 2011
2% 1% 1% 1% 1% 1%
0% 1% 1% 0% 1% 0%
0
0 Unlikely to increase 1 Remain the same 2 Likely to increase 4
Increase / Decrease in personal income

18


Investment activity across key instruments slides further
 Instruments with most activity such as savings account, insurance, stocks and gold witness a significant drop
this quarter compared to June 2010 levels

 Time deposits (36%) and mutual funds (48%) take a beating of 18 and 27 percentage points, respectively
Retail investment activity in the past 12 months

100% 97% 92% 95% Jun 2010 Sep 2010
86% 83% Dec 2010 Mar 2011
80% 69%
65%
60% 52% 54% 56% 56% 50%
45%
36% 35% 35% 36% 36%
40% 26%
21%
20% 6% 5% 7% 8%
0%
Savings account Time deposit Insurance and Retirement Property Gold and other bullion Foreign currencies
products
100%
80% 75% 76% 75%
68% 66%
59% 60%
60% 48%
40%
24% 18% 23% 18% 18%
20% 13% 12%13% 15% 12% 12% 13%
5% 3% 4% 2% 3% 1% 2% 1%
0%
Stocks Mutual Funds Bonds Certificate of Warrants Derivatives* Others
deposits
* Other stock market derivative products (e.g. futures, options)

19


Investor strategy – Currently conservative, aggressive in the future
 Current investment strategy for most retail investors is to preserve capital (39%) and to maintain a cautious
outlook towards their investments (29%)

 Investors expected to turn more aggressive (57%) with their investment strategies in the next six months

Current investment strategy Investment strategy in coming 6 months

8% 1%
15% 14%
17%
Risk Averse Extremely aggressive
34%
Somewhat aggressive
Preserve Capital

No change
Cautious
Investments Somewhat conservative
39%
Willing to take risks
29% 43% Extremely conservative

20


Corporate activity in Term deposits witnesses a steady increase
 Investment activity in debt mutual funds shows a marginal increase (2 percentage points) after its slide in
September and December 2010

 Investment activity in bonds (48%) drops 11 percentage points after a spike in the last quarter

Corporate investment activity in the past 12 months
100% 94% Jun 2010 Sep 2010
100% 90% 92% Dec 2010 Mar 2011
80% 74%
67%
60% 56%
60% 47% 44%
43% 45% 46%
32% 35% 32% 37% 38% 35%
40% 31% 30% 29% 26%
24%
20%
0%
Term deposits Inter-corporate deposits Commercial Papers Debt Mutual Funds Equity Mutual Funds Stocks
100%

80%
59%
60% 48% 45%
35% 30% 37% 38%
40% 28%
24% 16% 25%
20% 15%
8% 8% 6% 10% 10% 14% 6% 8%
4% 0% 0% 2%
0%
Bonds Certificate of deposits Warrants Derivatives* Structured products Others

* Other stock market derivative products (e.g. futures, options)

21


MMFs find favour with treasuries again
 Fixed Maturity Plans (60%) down 9 percentage points this quarter after a steady increase in the previous 9
months

 Money Market Funds (86%) bounce back this quarter to become the most preferred Debt mutual fund among
corporate treasuries

Corporate investments in debt mutual funds in the past 12 months
100%
Jun 2010 Sep 2010 Dec 2010 Mar 2011
90% 87% 88% 86%

80%
67% 69%
70%
60%
60% 54%
50% 46%
39% 40%
40% 35%
33% 32% 31% 33% 34% 32%
30% 25%
20%
20%
13% 12% 12%
10%
0% 0%
0%
Bond funds Money Market Fixed Maturity Floating Rate GILT funds Others
Funds Plans Debt Funds

22


Majority advisors think long term is ‘3 – 5 years’
 Long term investments for corporates is a shorter time span compared to advisors and retail investors; 28%
interpret 2 – 3 years and 24% interpret 1 – 2 years

 Advisors (65%) and retail investors (32%) interpret long term investment period to be between 3 and 5 years

70%
65% Retail Corporate Advisor

60%

50%

40%
32%
30% 28% 28%
24% 24%

20% 17% 18%
13% 14%
12%
10% 6%
1% 4% 4%
2% 2% 3% 2%
0% 0%
0%
Less than 1 year 1 year – 2 years 2 years – 3 years 3 years – 5 years 5 years – 10 years Over 10 years Cant Say

23


Financial community unanimous on expected ROI from equity funds
 A majority of advisors and corporates (50% each) expect an annual return of 10 – 15% from equity funds with
an investment horizon of more than three years

 A sizeable percentage of retail investors (31%) are conservative expecting a return of 5 – 10%

70%
Retail Corporate Advisor

60%

50% 50%
50%

40% 37%
35%
31%
30%

18% 20%
20% 16%
11%
10% 8% 6% 7%
2% 4% 3%
2%
0% 0%
0%
0 - 5% 5 - 10% 10 - 15% 15 - 20% Above 20% Cant Say

24

Other sentiment drivers
- Sensex, economic signals, union budget, expectations on income

25


Sensex to hover between 19,000 – 20,000 in Sep’ 2011
 Retail investors (28%) and advisors (42%) suggest that the Sensex will trade marginally higher between 19,000
– 20,000 in September 2011

 Advisors (37%) and retail investors (26%) were highly optimistic about the Sensex levels in March 2011
suggesting it will trade between 20,000 – 21,000 while it traded between 17,800 – 19,200
Advisors more confident of BSE Sensex trading at higher levels in September 2011
45% BSE Sensex Retail Advisor
42%
during the
35% Survey
28% 22%
25%
19%
15% 10%
9% 16%
2% 4% 15% 4%
5% 3% 8% 2% 2% 0%
0% 3% 0% 3% 0% 0% 0%
-5% 0%
14,000- 15,000- 16,000- 17,000- 18,000- 19,000- 20,000- 21,000- 22,000- 23,000- 24,000- 25,000-
15,000 16,000 17,000 18,000 19,000 20,000 21,000 22,000 23,000 24,000 25,000 26,000
Retail investors and advisors optimistic of BSE Sensex levels in March 2011
BSE Sensex 37% Retail Advisor
35% during the
Survey
25% 21%
23% 26% 24%
17%
15%
BSE 8%
3% 4%
5% Sensex in 3% 5%
2% 6% 1% 1%
2% 6% 1% 2%
4% Sep 2010 0% 0% 0% 0%
-5%
16,000- 17,000- 18,000- 19,000- 20,000- 21,000- 22,000- 23,000- 24,000- 25,000- 26,000- 27,000&
17,000 18,000 19,000 20,000 21,000 22,000 23,000 24,000 25,000 26,000 27,000 Above

26


GDP Growth a catalyst to the Indian economy
 Corporates (46%) most positive on GDP growth compared to retail investors (25%) and advisors (26%)

 Corporates (22%) consider increase in Industrial output as the second-most positive indicator while their outlook
on corporate profitability is the lowest (4%) among the three categories

60%
Retail Corporate Advisors

50% 46%

40%

30%
25% 26%
24%
21% 22%
20% 19%
15%
12% 13% 13%
9% 10%
10% 8% 7%
6%
4% 4% 5% 4%
2% 3%
1% 2%
0%
Resurgence in GDP growth RBI‟s continued Government's fiscal Increase in Increased credit Increase in Others
corporate profits meeting/exceeding monetary measures employment offtake from the Industrial output /
expectations measures opportunities private sector Exports

27


GDP growth remains the most +ve indicator through the year
 RBI‟s monetary measures (21%) sees a revival among advisors after a gradual decline in the previous nine
months
March 2011 December 2010
60% 60% 53% 49% Retail
46% Corporate
40% 40% Advisors
24% 25% 26% 21%
19% 19% 20% 17%
20% 15% 12% 20% 12% 14%
4% 6% 6%
0% 0%
Resurgence in GDP growth RBI‟s continued Resurgence in GDP growth RBI‟s continued
corporate profits meeting/exceeding monetary measures corporate profits meeting/exceeding monetary measures
expectations expectations

September 2010 June 2010

60% 60% Retail
46% Corporate
41%
40% 34% 37% 40% Advisors
25% 29%
25%
14% 11% 16% 13% 16% 20% 15% 13% 17%
20% 8% 9%
7%
0% 0%
Resurgence in GDP growth RBI‟s continued Resurgence in GDP growth RBI‟s continued
corporate profits meeting/exceeding monetary measures corporate profits meeting/exceeding monetary measures
expectations expectations

28


Inflation woes continue to grip corporates and advisors
 A substantial percentage of corporates (70%) and advisors (60%) are wary of inflation this quarter

 Retail investors cite both inflation (26%) and corruption (22%) as a cause of concern

80%
70% Retail Corporate Advisors
70%
60%
60%

50%

40%

30% 26%
22% 22%
20% 16% 17%
12%
8% 8% 8%
10% 6% 5% 5% 4% 6%
4%
0% 0% 0% 1% 1% 0% 1%
0%
Inflation Impact of changing Increased Corruption Middle East High govt General downward Others
climate globally protectionism in political crisis borrowings / high trend in the stock
developed fiscal deficit market
economies

29


Financial community anxious about inflation
 Fear of global economic and political factors affecting the growth of the Indian economy has subdued over the
year among the financial community
March 2011 December 2010
80% 70% 80% Retail
60% 63% Corporate
60% 60% 48% Advisors

40% 40% 28%
26% 22% 22% 19% 19%
12% 13% 16%
20% 8% 20% 8% 8%
5% 4%
0% 0%
Middle East political Inflation Corruption Fear of global economic Inflation Corruption
crisis instability

September 2010 June 2010

80% 80% Retail
Corporate
60% 60% 48% Advisors
40% 35% 40%
40% 36% 40% 29%
26% 30% 26% 30% 20%
16% 20% 15%
20% 14% 7% 6% 7%
8%
0%
0%
Fear of resurgence of Inflation High govt borrowings / Impact of Eurozone Inflation High govt borrowings /
US / global recession high fiscal deficit Debt crisis high fiscal deficit

30


Union Budget FY 2011-12 satisfactory – India Inc.
 Retail investors (56%) most satisfied with 9% of respondents indicate they are “very satisfied” with the Union
Budget

 Among corporates and advisors a higher percentage, 42% and 54% respectively, are neutral

100% 0% 1%
9%

38% 34% Very Satisfied
80%

47% Satisfied
60%

Neutral
40% 42%
54%
Dissatisfied
34%
20%
16% Very Dissatisfied
8% 7%
2% 4% 3%
0%

31


Retail investors happy about paying lesser tax
 Advisors (26%) are joyous about the reduction in corporate tax surcharge while corporates (38%) feel that the
unaltered central excise duty and service tax is the most important.

 A reasonable percentage of retail investors (10%), corporates (12%) and advisors (18%) suggest that the Five
fold strategy against black money is an important part of the union budget
60%

40% 38%

26% 26%
21% 20% 21%
20% 17% 18% 18%
12% 11% 12%
10% 10% 10%
6% 7% 7%
4% 4%
1%
0%
Tax exemption limit Extension of Tax Reduction in Increase in the Five Fold Strategy Central excise duty Others
raised saving infrastructure corporate tax number of services against black money and service tax
bonds surcharge falling under service remain unchanged
tax

32

JPMorgan - ValueNotes Investor Confidence Index Wave VII, March 2010

JPMorgan - ValueNotes Investor Confidence Index Wave VII, March 2010

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