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In House Calls Review September 09

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  • 1. In House Calls 2008 – 09 September 2009 Private & Confidential
  • 2. 2003 History The 2003 Story Back in 2003, the economy was coming out of a growth slowdown led by global and local factors (drought). Valuations had hit a low point of the cycle and the market rallied hard on the back of liquidity. Central Banks around the world, including India has ease off liquidity in the markets for growth revival. This liquidity drove the markets higher. Valuations rose 50% from the lows and the market started appearing expensive. However, the expectation of growth returning and strong earnings in future was the word everywhere. Thus, despite the assets being expensive, the markets sustained its performance in 2004 and beyond. Wealth Management 2
  • 3. Will 2003 History Repeat? 2009 Recalling of 2003 (Déjà vu? 2003 All Over Again) We see a similar pattern this time around. Valuations cycle hit a low in March 2009. Liquidity was splashed in the system after the fiscal and monetary stimulus post 2008 crisis. Stocks have surged with the narrow indices rising ~85% from its low. Valuations have also grown by ~60% from the low. Earnings revision has also raised as the growth outlook as improved. Investors this time is concern that market is pricing in all the growth that is coming over the next 12 months. The fears of drought leading to a slowdown in growth has not helped change the outlook and these factors are causing extreme volatility. However, an outcome similar to 2003 can’t be ruled out i.e., market closing on a strong note in 2009. Infact the liquidity and economic measures seems to be more forceful than in 2003. (even though valuations are higher). We are still out on the vigor of the growth recovery and we are yet to determine how much pace this market recovery gathers beyond 2009. Wealth Management 3
  • 4. In-house calls summary 11th April ’08 • Large cap stocks were available at reasonable valuation due to crash in the stock market looking at the India Growth story. • Also, technical's had given a buy call for the immediate short term rally in the market & hence Invested in Large Cap Mutual Funds 9th June ’08 • Investors who can not sustain high volatility is advised to redeem 25% to 30% of the portfolio & stay invested in liquid fund. 22nd Sept ’08 • With an inflation hovering above 12% & 10 yr g-sec at around 8.5%, we strongly believed that over a period of time the spreads between G-Sec & Corporate yield will contract which were around 400 bps • Also with contracting spreads & capital appreciation in bonds makes income fund more attractive • Hence, Invest the cash into Gilt Fund Wealth Management 4
  • 5. In-house calls summary 3rd Nov ‘08 • Due to Lehman brothers & Other big banks collapse, the global markets had tumbled including India. Indian markets have almost fallen by 40% in a single month. • We believed that relief rally would take place in the next 6 to 9 months & can see 50% rise in the market. • Hence it is advised to switch from Mid-Cap & Opportunities fund to Large-Cap funds in a three months staggered form (STP) . 24th April ’09 • With the credit policy out from RBI & higher volatility in interest rate, we recommended switch from Gilt fund to Short Term Income Funds / Liquid Fund & start staggering into MIPs from now to June ’09 • One can also look to invest in gilt / income fund again when g-sec bounce back to 7 to 7.25% Wealth Management 5
  • 6. In-house calls summary 25th May ‘09 • The election results has turned out to be a complete “Game Changer” • We feel that there is huge difference in valuation and earnings ratio compared to large cap and hence we recommended a switch to Midcap fund from large cap funds • Large caps has already rallied in pre-election rally and also after the election results and hence we advised to book profits to the tune of 25% of the portfolio in large cap funds • Investment into Mid-cap funds has to be in two stages: Lump sum investment of 25% (Switch from Large cap) Three month staggered investment (STP) 13th July ’09 • We advised client to do lateral sift (5% – 10%) to Gold from the Liquid funds. Wealth Management 6
  • 7. In-house calls performance 100% Equity : 0% Debt Portfolio Model Portfolio Benchmark Index 110 100 reduced exposure to equity asset due to high volatility 90 invest cash into Gilt & Book partial profit in Income Fund Large Cap & invest in 80 Midcap 70 60 Buy call for Large cap Fund 50 40 book profits in Gilt & Income Fund & invest in 30 MIP & hold cash due to election switch from Mid & Opp 20 fund into large cap funds & stay in cash reduced cash exposure & made lateral shift in 10 Gold 0 Mar-08 Mar-09 May-08 May-09 Oct-08 Dec-08 Jan-08 Jul-08 Aug-08 Jan-09 Jul-09 Aug-09 Feb-08 Apr-08 Feb-09 Apr-09 Jun-08 Sep-08 Nov-08 Jun-09 Note: Model Portfolio does not include 20% upper circuit movement as it was declared as Non-Business day for the Equity Mutual Fund. Wealth Management 7
  • 8. In-house calls performance 75% Equity : 25% Debt Portfolio Model Portfolio Benchmark index 110 105 reduced cash exposure & reduced exposure to equity made lateral shift in Gold asset due to high volatility 100 invest cash into Gilt & Income Fund Book partial profit in 95 Large Cap & invest in Midcap 90 85 80 75 70 Buy call for Large cap Fund 65 60 55 book profits in Gilt & Income Fund & invest in 50 MIP & hold cash due to 45 election switch from Mid & Opp 40 fund into large cap 35 funds & stay in cash 30 Mar-08 Mar-09 May-08 May-09 Oct-08 Dec-08 Jan-08 Apr-08 Jul-08 Aug-08 Jan-09 Apr-09 Jul-09 Aug-09 Feb-08 Feb-09 Jun-08 Sep-08 Nov-08 Jun-09 Note: Model Portfolio does not include 20% upper circuit movement as it was declared as Non-Business day for the Equity Mutual Fund. Wealth Management 8
  • 9. In-house calls performance 50% Equity : 50% Debt Portfolio Model Portfolio Benchmark index 110 105 reduced exposure to equity invest cash into Gilt & reduced cash 100 asset due to high volatility Income Fund exposure & made lateral shift in Gold 95 Book partial profit in Large Cap & invest in 90 Midcap 85 80 Buy call for Large cap Fund 75 70 switch from Mid & Opp fund into large cap book profits in Gilt & 65 funds & stay in cash Income Fund & invest in MIP & hold cash due to election 60 Mar-08 Mar-09 May-08 May-09 Oct-08 Dec-08 Jan-08 Apr-08 Jul-08 Aug-08 Jan-09 Apr-09 Jul-09 Aug-09 Feb-08 Sep-08 Feb-09 Jun-08 Nov-08 Jun-09 Note: Model Portfolio does not include 20% upper circuit movement as it was declared as Non-Business day for the Equity Mutual Fund. Wealth Management 9
  • 10. In-house calls performance 25% Equity : 75% Debt Portfolio Model Portfolio Benchmark index reduced cash exposure & made 120 lateral shift in Gold Book partial profit in 115 Large Cap & invest in Midcap 110 invest cash into Gilt & reduced exposure to equity Income Fund asset due to high volatility 105 100 95 90 book profits in Gilt & Income Fund & invest in Buy call for Large cap Fund MIP & hold cash due to 85 election switch from Mid & Opp 80 fund into large cap funds & stay in cash 75 Mar-08 Mar-09 May-08 May-09 Oct-08 Dec-08 Jan-08 Apr-08 Jul-08 Aug-08 Jan-09 Apr-09 Jul-09 Aug-09 Feb-08 Feb-09 Jun-08 Sep-08 Nov-08 Jun-09 Note: Model Portfolio does not include 20% upper circuit movement as it was declared as Non-Business day for the Equity Mutual Fund. Wealth Management 10
  • 11. In-house calls performance 10% Equity : 90% Debt Portfolio Model Portfolio Benchmark index reduced cash 130 exposure & made lateral shift in Gold 125 Book partial profit in 120 Large Cap & invest in Midcap 115 invest cash into Gilt & 110 Income Fund reduced exposure to equity asset due to high volatility 105 book profits in Gilt & 100 Income Fund & invest in MIP & hold cash due to election 95 90 Buy call for Large cap Fund switch from Mid & Opp fund into large cap funds & stay in cash 85 Mar-08 Mar-09 May-08 May-09 Oct-08 Dec-08 Jan-08 Apr-08 Jul-08 Aug-08 Jan-09 Apr-09 Jul-09 Aug-09 Feb-08 Feb-09 Jun-08 Sep-08 Nov-08 Jun-09 Note: Model Portfolio does not include 20% upper circuit movement as it was declared as Non-Business day for the Equity Mutual Fund. Wealth Management 11
  • 12. Assumptions Funds Selected Equity Funds Debt Funds Large Cap Fund Gilt Fund Liquid Fund Birla Frontline Equity Fund ICICI Pru Gilt Fund - Investment Plan HDFC CMF - Treasury Plan DSP Black Rock Top 100 Equity Fund Templeton India Gilt Plan - Composite Plan UTI Treasury Advantage Plan HDFC Top 200 Fund HSBC Equity Fund Mid Cap Fund Income Funds Gold Birla Mid-Cap Fund Birla Income Plus Investment in Gold IDFC Premier Equity Fund HDFC Income Fund Reliance Growth Fund Reliance Income Fund Opporunities Fund MIP DSP Black Rock Opportunities Fund Birla MIP ICICI Pru Dynamic Plan ICICI Pru MIP Kotak Opportunities Fund Reliance MIP Benchmark Portfolios S & P Nifty 100% Equity : 0% Debt 75% - Nifty & 25% - I-Sec Composite Index 75% Equity : 25% Debt 50% - Nifty & 50% - I-Sec Composite Index 50% Equity : 50% Debt 25% - Nifty & 75% - I-Sec Composite Index 25% Equity : 75% Debt 10% - Nifty & 90% - I-Sec Composite Index 10% Equity : 90% Debt Data source: MFI Explorer Wealth Management 12
  • 13. Limitations Entry and Exit loads have not been considered and incidentally they have no material bearing in the intervening period as its been exits of older investments that didn’t feature exit loads. Taxation has not been considered for the purpose of illustration, as the date of investments and individual tax status is unknown. Execution has been closer to the date of recommendation. Benchmark Index is calculated in proportion with Equity-Debt Allocation of the Portfolio. Eg. For a 90% Equity – 10% Debt Portfolio, Benchmark Index will comprise 90% allocation in NIFTY and 10% in I-Sec Composite Index. For 80% - 20% Portfolio, 80 % allocation in NIFTY and 20% in I-Sec Composite Index. Wealth Management 13
  • 14. Disclaimer This note has been prepared exclusively for the benefit and internal use of the recipient and does not carry any right of reproduction or disclosure. Neither this note nor any of its contents maybe used for any other purpose without the prior written consent of Anagram Capital Limited. In preparing this note, we have relied upon and assumed, without any independent verification, the accuracy and completeness of all information available from public sources or which was otherwise reviewed by us. This note contains certain assumptions, which Anagram Capital Limited considers reasonable at this time and our views as of this date and are accordingly subject to change. Computations adopted in this note are indicative and are based on current prevailing market prices and general market sentiment. No representation or warranty is given by Anagram Capital as to the achievement or reasonableness or completeness of any idea and/or assumptions. This note does not purport to contain all the information that the recipient may require. Recipients should not construe any of the contents herein as advice relating to business, financial, legal, taxation, or investment matters and are advised to consult their own business, financial, legal, taxation and other advisors concerning the company. This note does not constitute an offer for sale, or an invitation to subscribe for, or purchase equity shares or other assets or securities of the company and the information contained herein shall not form the basis of any contract. It is also not meant to be or to constitute any offer for any transaction. Wealth Management 14

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