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Portfolio investment opportuities in india

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Investment Opportunities in India

Investment Opportunities in India

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  • 1. National Emblem of IndiaThe national emblem of India is anadaptation from the Sarnath Lion Capital ofAshoka. In the original, there are four lions,standing back to back, mounted on an Taj Mahal, Agraabacus with a frieze carrying sculptures inhigh relief of an elephant, a galloping horse,a bull, and a lion separated by interveningwheels over a bell-shaped lotus. Carved outof a single block of polished sandstone, theCapital is crowned by the Wheel of the Law(Dharma Chakra). Portfolio Investment Opportunities in IndiaIn the state emblem, adopted by the David M. Darst, CFAGovernment of India on January 26, 1950,only three lions are visible, the fourth being October 2012hidden from view. The wheel appears inrelief in the centre of the abacus with a bullon right and a horse on left and the outlinesof other wheels on extreme right and left.The bell-shaped lotus has been omitted. Thewords Satyameva Jayate from MundakaUpanishad, meaning “Truth AloneTriumphs,” are inscribed below the abacusin Devanagari script.Source: www.india.gov.in; Wikimedia Commons. Red Fort, Delhi Brihadeeswarar Temple, Tamil Nadu Mahabodhi Temple, Source: Wikimedia Commons. Bodh Gaya Please refer to important information, disclosures, and qualifications at the end of this material.
  • 2. Morgan Stanley Smith BarneyInvestment Strategy Table of Contents Flag of India Section 1 Background Page 3 Section 2 Issues for Consideration Page 67 Section 3 Investing Background Page 98 Section 4 Understanding India’s Investment Potential Page 124 Section 5 Overview of Investment Landscape Page 141 Sachin Tendulkar at BatDuring an International Test Against Australia in 2010 Section 6 Additional Sources and Disclosures Page 149 Mumbai Skyline and the Rajiv Gandhi Sea Link Section of Indian National Highway India’s Geosynchronous Satellite Launch Vehicle Source: Indian Space Research Organization (Image of Satellite Launch Vehicle); Wikimedia Commons. 2 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 3. Morgan Stanley Smith Barney Investment Strategy“[India is] the cradle of the human race,birthplace of human speech, mother ofhistory, grandmother of legend, great-grandmother of tradition, whose yesterdaysbear date with the mouldering antiquities ofthe rest of the nations. Our most valuableand most instructive materials in the historyof man are treasured up in India only.” Mark TwainSource: www.wikiquote.org Temple at Khajuraho, Madhya Pradesh Section 1 BackgroundMarble screen at Humayun’s Tomb, Delhi Statue of Lord Shiva Statue of Meditating Mahavira Jawaharlal Nehru and Mahatma Gandhi Source: Wikimedia Commons. 3 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 4. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India at a Glance Emblem of Uttar Pradesh • India has undergone a significant Background transformation since it began moving toward a free market economy in • After the government of Jawaharlal Nehru formed the first planning commission in 1950 in an attempt to efficiently allocate 1991. resources to various sectors of the economy, Indian real GDP grew at an annual rate of 3.5% through 1980; a relatively • This transformation has been marked modest level of growth for an emerging economy, it would unfairly become known as the “Hindu rate of growth.” by substantial growth in India’s real • Coming to power in 1984 after Indira Gandhi’s assassination, Rajiv Gandhi accelerated reforms initiated by his mother, GDP. including: (i) measures to reduce the industrial-licensing system known as the “License Raj;” (ii) a reduction in tariffs on • India’s development has important imports; and (iii) a reduction in corporate taxes and income taxes. implications for world trade, economic • While Gandhi’s efforts to spur reform were seen as a positive step, the reforms did not fundamentally alter the status quo of growth, global prices, capital flows, the Indian economy, known as a “Caged Tiger,” built upon the ideals of Fabian socialism. and geopolitics. • In the late 1980s, an increase in external debt from 10-15% of GNI to 20-25% of GNI, combined with persistent and risingPolitical Leaders of India, 1947 - Present government fiscal and current account deficits led to a balance of payments crisis which left India dangerously short of foreign exchange reserves and at risk of default on its short-term debt obligations.Cong: Congress NDA: National Democratic AllianceNF: National Front BJP: Bharatiya Janata Party • After the June 1991 election of the Congress Party’s Narasimha Rao, the third government in 18 months, the crisis wasUF: United Front UPA: United Progressive Alliance stemmed following a double-devaluation of the Rupee and the emergency airlift of 47 tonnes of gold to be held as collateral at Years the Bank of England in order for India to raise $600 million.Prime Minister Party in Office • Rao’s finance minister, Manmohan Singh, quickly pushed India toward a more market-based economy by introducing a wideJawaharlal Nehru Cong 1947 - 64 array of economic reforms, including: virtually eliminating the “License Raj;” reducing tariffs on imports; allowing a greaterLal Bahadur Shastri Cong 1964 - 66 level of foreign direct investment; loosening foreign-exchange controls; lowering income taxes; decreasing publicIndira Gandhi Cong (R) 1966 - 77 expenditures; and reducing India’s fiscal deficit.Morarji Desai Janata 1977 - 79 • As the reform process continued, Indian real GDP grew at a rate of 6.4% through the remainder of the 1990s and at a rate ofCharan Singh Janata 1979 - 80 7.2% during the 2000-2010 period.Indira Gandhi Cong (I) 1980 - 84Rajiv Gandhi Cong (I) 1984 - 89 Post – 2010 DevelopmentsV.P. Singh NF 1989 - 90 • As of mid-2012, India’s GDP growth rate decelerated somewhat as India experienced an unsupportive growth mix of highChandra Shekhar NF 1990 - 91 fiscal deficits and declining private investment since the credit crisis of 2008 and a slowed pace of economic reform amidP.V. Narasimha Rao Cong (I) 1991 - 96 political gridlock. As of September 2012, Morgan Stanley & Co. Research estimated that India’s GDP growth in 2013 andAtal Bihari Vajpayee UF 1996 - 96 2014 would be approximately +5.1% and +6.1%, respectively.H.D. Deve Gowda UF 1996 - 97 • In August 2012, with the Indian economy in the midst of a period of slowed growth, Prime Minister Manmohan SinghI.K. Gujral UF 1997 - 98 reiterated his commitment to overcoming the lack of political consensus on reforms that would “increase the pace of economicAtal Bihari Vajpayee NDA (BJP) 1998 - 99 growth, take steps to encourage new investment, and improve the management of Government finances.”Atal Bihari Vajpayee NDA (BJP) 1999 - 04 • In September 2012, PM Singh defended the government’s decisions during the month to reduce government subsidies by 2004 - hiking diesel prices and to reinitiate efforts to further open India’s fragmented retail sector to greater foreign directDr. Manmohan Singh UPA/Cong Present investment, potentially opening the Indian market to multi-brand retailers such as Walmart.Source: Know India: National Portal of India; India: A History, John Keay, Grove Press, 2000; Wikimedia Commons. Source: Central Statistical Office; Prime Minister’s Office; World Bank; “Survey of India: Bold Plans for Reform/Policies for Trade and Industry,” by John Elliot, Financial Times, June 3, 1985; “How India Micro-Managed its Way to Failure,” The Economist, May 4, 1991; “India Buys Back Gold Pledged for Loans,” Reuters, Nov. 22, 1991; “India’s Retail Reform,” The Economist, Jan. 12, 2012. 4 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 5. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Country Statistics Emblem of Maharashtra Top Nations by GDP per Capita General Information Purchasing Power Parity GDP per capita ($US) in 2011 1 Qatar 102,943 • Language: Hindi, English, and 20 other official languages including Bengali, Telugu, Tamil, Urdu, and Gujarati. 2 Luxembourg 80,119 • Exchange Rate: Managed Floating; US$1.00= INR 53.06 (as of Dec. 30, 2011) 3 Singapore 59,711 • 2011 Population: 1.21 billion 4 Norway 53,471 • FY2012 Economy by Sector (as % of GDP): Agriculture, 16.1%; Industry, 24.9%; and Services, 59.0% 5 Brunei Darussalam 49,384 • 2011 Main Cities and Populations: Mumbai (18.4 million), Delhi (16.3 million), Kolkata (14.1 million), Chennai (8.7 million), 6 Hong Kong SAR 49,137 Bangalore (8.5 million). 7 United States 48,387 8 United Arab Emirates 48,158 Source: Census of India, Ministry of Home Affairs; Bloomberg. Data are as of December 30, 2011. 9 Switzerland 43,370 10 Netherlands 42,183 11 Austria 41,822 India: Economic Forecast Summary India Real Gross Domestic Product 12 Kuwait 41,691 $US Billion, unless otherwise indicated Year-over-Year % Change, Fiscal Year Ended March 31 13 Canada 40,541 Fiscal Year Ended 12.0% 14 Sweden 40,394 March 31 2010 2011 2012 2013E 2014E 15 Australia 40,234 Nominal GDP 1,361.5 1,684.0 1,847.5 1,797.0 2,098.0 16 Ireland 39,639 17 Iceland 38,061 10.0% 18 Germany 37,897 Exports 182.4 250.5 309.8 325.0 380.0 19 Belgium 37,737 20 Taiwan Province of Chin 37,720 Imports 300.6 381.1 499.5 503.0 574.0 93 China 8,382 8.0% 128 India 3,694 Trade Balance (118.2) (130.6) (189.8) (177.0) (194.0)Source: World Economic Outlook, by the International Monetary Fund, April 2012. Current Acct. Balance 6.0% (2.8) (2.7) (4.2) (3.4) (3.0) (% of GDP)Indian GDP by SectorFY1951 – FY2012 Foreign Investment 50.4 39.7 39.2 22.0 30.0% 4.0% 60 59.0% Capital Inflow 3.8 3.7 3.7 2.5 3.3 50 (% of GDP) 40 Foreign Currency Reserves 11.1 9.6 7.1 6.6 6.0 30 (as no. of months imports) 2.0% 24.9% 20 External Debt 19.2 18.2 18.7 20.6 19.0 16.1% (% of GDP) 10 0 Fiscal Deficit 0.0% 9.4 8.1 8.7 8.7 8.1 (% of GDP) 00 01 02 03 04 05 06 07 08 09 10 11 12 13E 14E 51 61 71 81 91 01 11 Agriculture Industry Services Source: Reserve Bank of India; Central Statistics Office; Budget Documents; Morgan Stanley Source: Central Statistics Office; Morgan Stanley & Co. Research. & Co. Research. Estimates are as of September 2012. Estimates are as of September 2012.Source: Central Statistics Office. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 5 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 6. Morgan Stanley Smith Barney BACKGROUNDInvestment Strategy The Indian Subcontinent Emblem of BiharMap of the Indian Subcontinent The Indian Subcontinent - Geographic and Demographic Detail(1) Country Area Area % of Population % of Total Desert Kabul (sq. km) (sq. miles) Total Area (Millions) Population Kunlun Mountains Afghanistan Pakistan 796,095 307,374 18.54% 190.3 12.02% Indian Claim India 3,287,263 1,269,219 76.57% 1,210.2 76.45% Kandahar Islamabad Lahore Qing Zang Gaoyuan Bangladesh 143,998 55,598 3.35% 161.1 10.18% Mt.Everest (highest point in the world Pakistan Hi m 8850M) Sri Lanka 65,610 25,332 1.53% 21.5 1.36% al New Delhi a ya Total 4,292,966 1,613,916 100.00% 1,583.0 100.00% s Lhasa Jaipur Nepal Karachi Lucknow Bhutan The Indian subcontinent represents a peninsular landmass of the Asian Kathmandu Thimphu continent occupying the Indian Plate and extending into the Indian Ocean, Ahmadabad Kanpur Ganges Brahmaputra bordered on the north by the Eurasian Plate. The region is known as a Bangladesh subcontinent because its geography and geology are distinct from the rest India Dhaka of the continent. Gujarat Kolkata (Calcutta) Mandalay The Indian Subcontinent consists of four countries: Pakistan, Bangladesh, Mumbai Pune Nagpur Burma India, and Sri Lanka. The subcontinent is surrounded by three bodies of (Bombay) Deccan water: the Bay of Bengal, the Indian Ocean, and the Arabian Sea. Historically, the Indian subcontinent was known as Bharat in ancient (pre- W es Hyderabad s at Gh 1000 CE) times and Hindustan (Persian for “Land of the Hindus") in ternArabian Sea n er Rangoon Ea st medieval times, following the presence of the Mughals. The region came Gha to be known as "British India" or simply "India," during the British Raj ts Bay of Bengal Chennai Bangalore (Madras) period. Lakshadweep Andaman Until the end of the 19th century, the Indian subcontinent along with (India) Islands Andaman Southeastern Asia was collectively known as the East Indies by European (India) Sea colonists and traders. The Indian subcontinent was referred to as Hither Jaffna India (India Citerior) while Southeastern Asia was known as Further India Laccadive Sea Sri Lanka (India Ulterior). Nicobar Colombo Islands Maldives Male (India)Source: Morgan Stanley Smith Barney Investment Strategy. Sri Lanka Bangladesh Pakistan India Note: 1. Population data estimates as of July 2011 from CIA World Factbook except for India, which is as of 2011 Census data Source: CIA World Factbook; Census 2011, Ministry of Home Affairs; Wikimedia Commons. 6 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 7. Morgan Stanley Smith Barney BACKGROUNDInvestment Strategy Night-flowering Jasmine The Dynasties of India State Flower of West BengalMap of the 16 Mahajanapadas Dynasties600 BC Length of Dynasty (or period) Extent of Period Period (Years) Significant Achievement Stone Age 75,000 – 3300 BC 71,700 Mehrgarh Culture 7000 – 3300 BC 3,700 Earliest known farming settlements Bronze Age Civilizations 3300 – 1000 BC Indus Valley Civilization 3300 – 2600 BC 700 Domestication of crops, first urban centers Mature Harappan Culture 2600 – 1500 BC 1,100 First urban sanitation systems, creation of municipalities Vedic Culture 1200 – 600 BC 600 Composition of the Vedas, the sacred texts of Hinduism Iron Age Kingdoms 1200 – 270 BC 930 Mahajanapadas 700 – 300 BC 400 Transition from tribal structure to political structure Magadha Kingdoms 550 – 26 BC 524 Founder of Buddhism, Gautama Buddha, is born Maurya Empire 321 – 181 BC 140 Ashoka the Great reigns over most of the Indian subcontinent Middle Kingdoms 230 BC – 1279 AD 1,509 Satavahana Empire 230 BC – 220 AD 450 Responsible for continuing development of trade routes Kushan Empire 60 – 260 AD 200 Golden Age of science, mathematics, astronomy, religion, and Gupta Empire 320 – 510 AD 190 philosophy Pala Empire 750 – 1043 AD 323 Last major Indian dynasty to espouse Buddhism Chola Empire 846 – 1279 AD 433 Spread Indian influence through Malaysia Hoysala Empire 1193 – 1343 AD 150 Led by Rani Rudrama Dev, one of the few ruling queens in Indian Kakatiya Empire 1162 – 1323 AD 161 historySource: Wikimedia Commons. Invasion by Turks, Persians, and Afghanis in the region leads to Islamic Sultanates 1206 – 1526 AD 320Mahajanapadas (महाजनपद) literally means "Great Clan Territories,” Islamic reign for three centuriesfrom the Sanskrit Maha meaning “great” and Janapada meaning Delhi Sultanate 1206 – 1526 AD 320 Repulsed Mughal invasions of 13th century“foothold of a clan.” Ancient Buddhist texts make frequent reference to Bahmanid (Deccan) 1347 – 1518 AD 171these sixteen great kingdoms and republics which evolved and Sultanate(s)flourished in the northern/north-western parts of the Indian Vijayanagara Empire 1336 – 1565 AD 229 Primary Hindu resistance to expansion of Islamic Sultanatessubcontinent prior to the rise of Buddhism in India. The Mughal Era 1526 – 1857 AD 331 Construction of the Taj MahalMahajanapadas existed between 600 and 300 BC, forming early Maratha Empire 1674 – 1818 AD 144 Last major Indian dynasty to espouse Hinduismcommunities and marking the inception of the country’s transition from Colonial Era 1757 – 1947 AD 190a tribal culture to a more political one. The sixteen Mahajanapadaswere: Kasi, Kosala, Anga, Magadha, Vrijji (or Vajji), Malla, Chedi, Modern States 1947 – Present 65Vatsa (or Vamsa), Kuru, Panchala, Machcha (or Matsya), Surasena,Assaka, Avanti, Gandhara, and Kamboja. Source: India: A History, John Keay, Grove Press, 2000; www.wikipedia.org. 7 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 8. Morgan Stanley Smith Barney BACKGROUNDInvestment Strategy Political Map of India Emblem of Andhra PradeshPolitical Composition of India Political Map of India With Select States Circled in RedIndia is comprised of 28 states and 7 union territories, the latter of which areruled directly by the national government rather than by a state legislature.India – States JAMMU AND(Listed in Descending Order of Population) KASHMIR Area Area PopulationState Capital (sq. km) (sq. mi) (Millions)Uttar Pradesh Lucknow 241,040 93,066 199.6Maharashtra Mumbai 307,871 118,870 112.4Bihar Patna 94,197 36,370 103.8 PUNJABWest Bengal Kolkata 88,773 34,276 91.3Andhra Pradesh Hyderabad 274,888 106,135 84.7Madhya Pradesh Bhopal 307,617 118,772 72.6 UTTARTamil Nadu Chennai 129,980 50,186 72.1 RAJASTHAN PRADESHRajasthan Jaipur 341,398 131,815 68.6Karnataka Bangalore 191,632 73,990 61.1Gujarat Gandhinagar 196,051 75,696 60.4Orissa Bhubaneswar 155,938 60,208 41.9Kerala Thiruvananthapuram 38,868 15,007 33.4 MADHYA PRADESHJharkhand Ranchi 79,629 30,745 33.0Assam Dispur 78,512 30,314 31.2Punjab Chandigarh 50,371 19,448 27.7 GUJARATChhattisgarh Raipur 135,133 52,175 25.5Haryana Chandigarh 44,246 17,084 25.4 MAHARASHTRAJammu & Kashmir Srinagar (Summer Capital) 101,201 39,074 12.5 ORISSA Jammu (Winter Capital)Uttarakhand Dehradun 53,528 20,667 10.1Himachal Pradesh Shimla 55,744 21,523 6.9Tripura Agartala 10,489 4,050 3.7Meghalaya Shillong 22,455 8,670 3.0 ANDHRAManipur Imphal 22,309 8,614 2.7 PRADESHNagaland Kohima 16,644 6,426 2.0Goa Panaji 3,700 1,429 1.5 KARNATAKAArunachal Pradesh Itanagar 81,330 31,402 1.4Mizoram Aizawl 20,981 8,101 1.1Sikkim Gangtok 7,066 2,728 0.6India – Union Territories TAMIL NADU(Listed in Descending Order of Population) Area Area PopulationUnion Territory Capital (sq. km) (sq. mi) (Millions)NCT of Delhi Delhi 1,483 573 16.8Pondicherry Pondicherry 479 185 1.2Chandigarh Chandigarh 114 44 1.1Andaman & Nicobar Islands Port Blair 8,260 3,189 0.4Dadra & Nagar Haveli Silvassa 491 190 0.3Daman & Diu Daman 112 43 0.2Lakshadweep Kavaratti 32 12 0.1 Source: Census 2011, Ministry of Home Affairs. Source: Wikimedia Commons. 8 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 9. Morgan Stanley Smith Barney BACKGROUNDInvestment Strategy Topographical Map of India Emblem of Andhra Pradesh Topography of India - Detail Topographical Map of India India contains a veritable kaleidoscope of terrains. Its overall area encompasses just over one million square miles, yet the country offers a rich topographical diversity of varied climatic and ecological zones. The country possesses the highest snowbound mountain range in the world, the Himalayas to the north, the wettest spot on the planet, the Garo Hills of Meghalaya on the east coast, humid tropical forests in the southwest, the fertile Brahmaputra valley in the center, the low-lying mangrove swamps of the Sunderbans, and the Thar desert with its ambient New Delhi4 sand dunes toward the west. India’s terrain underscores its mystic and ethereal qualities, as prehistoric crystalline rocks and lava created plateaus and rivers that flow through the uneven western lands, forming beautiful lagoons and backwaters, and traversing cliffs and coastal vistas, all of which set a tantalizing backdrop for the aspirations and Kolkata development of human society.Source: Bureau of Indian Tourism. MumbaiTopography of India - FactsDescription Metric HyderabadTotal Area 1.22 million sq. mi / 3.17 million sq kmLength of Coastline 4,670 mi / 7,516.5 kmLength of Mountain Range Himalayas, 1,490.4 mi / 2,398.1 kmCoordinates of New Delhi 28°36′50″N - 77°12′32″E Bangalore ChennaiHighest Elevation Point Kanchejunga, 28,209 ft 9000Lowest Elevation Point Kuttenad, -7.2 ft 6000 4000Land Area Percentage 90.4% 2000Water Area Percentage 9.6% 1000Longest River Ganges-Brahmaputra, 1,557 mi / 2,505 km 250Source: India 2011 – A Reference Annual, Publications Division, Ministry of Information and 50 Broadcasting; CIA World Factbook; www.wikipedia.org Source: Wikimedia Commons. 9 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 10. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Linguistic Map of India Emblem of Tamil Nadu Ceiling stone carvings, Vellore Fort A Popular Sanskrit Verse Temple, Tamil Nadu and its English Translation:On this earth there is no better Source: Wikimedia Commons. treasure than the donation,No worse enemy than the temptation, Sanskrit and the Languages of IndiaNo better jewelry than the beautiful character and nature, Sanskrit is the oldest language in the world. TheNo better wealth than the word Sanskrit literally means “perfected language” contentment.Source: www.tri-murti.com/ancientindia/index.html. or “language brought to formal perfection.” The Sanskrit alphabet is called “devanagari” and literally means “cities of the gods.” As of early 2012, the Indian constitution recognized 22 official languages and the Indian census recorded over 200 different mother tongues. States whose boundaries are based on languages include: Kerala for Mayalam speakers, Tamil Nadu for Tamil speakers, Karnataka for Kannada speakers, Andhra Pradesh for Telegu speakers, Maharashtra for Marathi speakers, Orissa for Oriya Source: Wikimedia Commons. speakers, West Bengal for Bengali speakers,Quran inscriptions, Bara Gumbad Gujarat for Gujarati speakers, Punjab for PunjabiMosque, Delhi speakers, and Assam for Assamese speakers.Source: Wikimedia Commons. Source: Bureau of Indian Tourism. 10 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 11. Morgan Stanley Smith Barney BACKGROUNDInvestment Strategy Select Versions of the Indian National Flag Emblem of In Use Between 1612 and 1947 RajasthanMany aspects of India’s recent historyare reflected in its flags. The first flagshown here is that of British India, inuse between 1612 and 1855. Thejuggernaut of revolutionary freedombursts into stars, lotus flowers,Devanagari script reading “Hail theMotherland,” and pictures of the sunand moon in the second two images.Inscribed symbols of the British Empire British India 1906 1907on the first two flags in the second rowunderscore the country’s path towardsovereignty. The spinning wheelintroduced by Gandhi as a nationalsymbol of non-violence and humilitytakes root in the next three flags, asIndia addressed different approaches tocreating and maintaining anindependent state in the pre-World WarTwo era. The final flag, officially 1916 1917 1921heralded in 1947, bears the twenty-fourspoked wheel known as the AshokaChakra in the center. Officialspecifications require that the flag bemade of “khadi,” a special andexquisite type of hand-spun yarn.The spectrum of colors in these flagsreflects the rich ethical cultures ofIndia: green, as the sacred color of the 1931Muslims; red, as the holy pigment of 1931 1947the Hindus; and golden saffron, asrevered by the Buddhists and the Sikhs. Source: Our National Flag, by K.V. Singh, Ministry of Information & Broadcasting, Government of India, 1991; www.wikipedia.org. 11 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 12. Morgan Stanley Smith Barney BACKGROUNDInvestment Strategy Introduction to Indian History Although isolated from the rest of Asia by oceans on three sides and mountain ranges to the north, India has experienced a near-constant influx of differing cultural influences, entering primarily via far northwest. As a result, India reflects wide regional diversity in cultures, languages, foods, and customs. Pre-History (30,000 – 1200 BC): Paleolithic (primitive stone tools) sites in India are scattered across the Indian subcontinent and date from 30,000 to 10,000 BC. The earliest Neolithic sites have been dated to 7000 BC and represent a transition toward agriculture, the domestication of animals, wheel-thrown pottery, and a more sedentary population. The Nal Culture and the Kulli Culture of this era were precursors to the Indus Valley Civilization also known as the Harappan Culture. The Harappan Culture represents the subcontinents first attempt at urbanization. Early History (1200 – 600 BC): The Vedic Culture and its accompanying Vedic Texts mark the beginning of Indian history (defined as the beginning of written accounts) and represent the first historical influx of foreign influence, in this case migrants known as Aryans thought to originate from Central Asia. During this Vedic period, the Caste structure and the beginnings of the subcontinents second and permanent urbanization emerged. Ashoka Pillar at Vaishali The Rise of States, Kingdoms, and Empires (600 BC – 1200 AD): As the urbanization of the Ganges River Valley progressed, kingdoms, known as the Mahajanapadas began to form. Magadha, a Mahajanapada based in present-day Bihar, West Bengal, and Bangladesh, launched The Maurya Empire was the Indian the subcontinent’s first experiment in imperial administration, the Maurya Empire. While several empires followed, including the Gupta subcontinents first experiment with Empire and the Buddhist Pala Empire, the Indian subcontinent was largely characterized by regional kingdoms that waxed and waned, with imperial administration. The central none attaining the level of the Maurya’s uniform authority throughout the subcontinent until the British Raj. administration communicated its message of laws and conduct through edicts The Islamic Sultans and Mughals (1200 – 1800 AD): Originating from Afghanistan, a Turkish, Afghan, and Arab army founded the inscribed on conveniently located rock Islamic Sultanates that introduced Muslim influence throughout the culture of the Indian subcontinent. Another foreign invader, the surfaces throughout the subcontinent and Mughals, originating from the Central Asian steppes but at the time ruling a kingdom in Afghanistan, reinforced this Muslim influence, and more notably, through magnificent the fusion of cultures occurring during this period was physically manifested through original styles of art and architecture. sandstone pillars polished to a remarkable Arrival of the European Trader (1500 – 1947 AD): Portuguese, English, French, and Dutch traders arrived on the Indian subcontinent to luster. The Ashoka Pillar at Allahabad capitalize on the trade in spices already traversing the Arabian Sea and Indian Ocean. This trade grew to include other raw materials and (not shown here), is noteworthy for eventually, the European powers expanded from their trading “factories” to acquire land and revenue rights. The British Crown maneuvered inscriptions from not only the Maurya to become the dominant European presence and subsequently came to govern the entire Indian subcontinent. Empire, but also from the Gupta Empire and the Mughal Empire. Post-Independence India (1947 – Present): After a decades-long effort notably marked by Mahatma Gandhi’s non-violent and civil disobedience demonstrations, the independent nation of India was born as the world’s largest democracy.Historical Timeline of Select Indian Cultures, Kingdoms, and EmpiresDate Indicates Approximate Start of PeriodMature Harappan Culture (p. 13) Mahajanapadas (p. 15) Gupta Empire (p. 17) Delhi Sultanates (p. 19) Maratha Empire (p. 21) Post-Independence India ca. 2600 BC ca. 1200 BC ca. 600 BC ca. 320 BC ca. 320 AD ca. 750 AD ca. 1205 AD ca. 1525 AD ca. 1675 AD ca. 1755 AD 1947 AD Vedic Culture (p. 14) Maurya Empire (p. 16) Pala Empire (p. 18) Mughal Empire (p. 20) Company Rule and British Raj (p. 22) Source: Morgan Stanley Smith Barney Investment Strategy; The Wonder That Was India, by A. L. Basham, Picador, 2004; Early India: From The Origins to AD 1300, by Romila Thapar, University of California Press, 2004; India: A History, by John Keay, Grove Press, 2000; www.wikipedia.org; Wikimedia Commons. 12 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 13. Please See Page 7 for a Complete List of DynastiesMorgan Stanley Smith Barney BACKGROUNDInvestment Strategy Bronze Age: Mature Harappan Culture (2600 – 1500 BC)Brief History Symbols, Art, and Culture• Centered around the two cities of Mohenjo-Daro and Harappa in the • Harappan Seals present-day provinces in Pakistan of Sindh and Punjab, respectively, the Often made of Steatite, small, flat, square and oblong-shaped seals Harappan Culture extended its influence to cover an extensive region, with are thought to be identifying tokens for authorities and trade. The sites as far North as Shortugai in the Pamirs (present-day Northern seals depict human and animal figures accompanied by an inscription Afghanistan) and trade activity with Mesopotamia. in a language as yet undeciphered, with the only consensus being that• The Harappan Culture represents the first attempt at urbanization in the it should read from right to left. The presence of Harappan seals in Indian subcontinent, as trade in the cities was driven by activity in the various parts of the ancient world are tangible indicators of the extent countryside to provide surplus food and raw materials such as copper, semi- of Harappan trade. precious stones, lapis, and timber. • Carnelian Beads• The decline of the Harappan Culture was initially attributed to invading An extensive bead-making industry developed in Harappan cities, Aryans; with little archeological evidence to support the large-scale with beads made from various materials such as gold, copper, shell, invasion theory, it appears more likely that urban decline was driven by semi-precious stones, steatite, and ivory. Etched beads of carnelian, a environmental changes, small-scale migration of Indo-Aryan speakers and brownish-red mineral, were a characteristic Harappan object. rural squatters, and generalized de-urbanization.Harappan Cities of Mohenjo-Daro and Harappa • Bronze “Dancing Girl,” • The two cities of Mohenjo-Daro and Harappa are the largest excavated While utilitarian architecture and an absence of monumental cities of the Indus civilization. Some of the larger cities cover an area of sculpture suggest a society less focused on artistic pursuits, several approximately 100 hectares (247 acres), and it has been suggested that examples of Harappan artworks exist on a small scale, including Mohenjo-Daro covers an area of 200 hectares (494 acres). seals, impressively naturalistic models of animals, and striking • Harappa and Mohenjo-Daro were built on a similar plan, with a raised figurines such as the bronze “dancing girl” shown here. citadel in the west which housed essential civic institutions. • The street grid was oriented approximately to the cardinal directions with Accomplishments some as wide as 30 feet. • Urbanization: The Harappan Culture embarked on the Indian subcontinent’s first attempt at urbanization and successfully designed cities on a grid pattern with • The majority of houses followed impressive uniformity throughout the Harappan sphere of influence. a similar plan, often of two stories or more, 30 feet square, with a • Sewerage System: A city-wide sewerage system funneled waste water from in-house central courtyard surrounded bathrooms into soak pits via sewers built underneath the main streets and covered by rooms. with kiln-fired brick. This design is considered to be the most-efficient drainage Mohenjo-Daro, system until that of the Romans. The Great Bath Source: The Wonder That Was India, by A. L. Basham, Picador, 2004; Early India: From The Origins to AD 1300, by Romila Thapar, University of California Press, 2004; India: A History, by John Keay, Grove Press, 2000; www.wikipedia.org; Wikimedia Commons. 13 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 14. Please See Page 7 for a Complete List of DynastiesMorgan Stanley Smith Barney BACKGROUNDInvestment Strategy Bronze Age: Vedic Culture (1200 – 600 BC)Brief History Symbols, Art, and Culture• The history of the Vedic Culture consists primarily of information gleaned • Music and Leisure from the sacred texts of which this civilization is attributed authorship, the As illustrated by numerous references to a variety of musical Vedas. The earliest Vedas often refer to the Sapta-Sindhu (“The Land of instruments in the Vedic texts and the knowledge of sound, tone, and the Seven Rivers”). These rivers are commonly believed to be tributaries of pitch essential to the chanting of the Samaveda, music played a the Indus River, suggesting that the earliest Vedic people, or Aryans as they significant role in the Vedic Culture. Aside from music, leisure time are often called, settled near the present-day Indo-Pakistan frontier. was spent singing, dancing, and gambling (with the casting of dice• The Doab, the crescent of land between the Yamuna River and the Ganges apparently an especially favored pastime). River, figures prominently in later Vedic texts, suggesting further migration eastward. • Emergence of a Caste System (“Varna”)• It is commonly assumed that this migration continued eastward and as the The Vedic texts illuminate the beginnings of a Caste system which was commonly people of the Vedic Culture settled in the Ganges River Valley, they believed to be an institutionalized way of maintaining social order prior to the eventually followed the path of the Harappa towards an urbanized society, development of states and their accompanying laws. The initial four Castes included: laying the foundation for the Mahajanapadas (“Great Clan Territories”) to – Brahmans: The priesthood to which were attributed crucial mystic powers, follow. through their monopoly of knowledge of the Vedic texts and the rituals which• Based on the Vedic texts, earlier theories from historians suggested that the had become a central part of Vedic Culture, including those necessary for the Aryan migration eastward was accompanied by pitched battles, with the validation of Rajas (“chiefs”) Aryans conquering all villages in their path atop their mounted chariots, a – Ksatriya: Warrior families from which a Raja would be chosen weaponry system new to the subcontinent. However, more recent opinions – Vaisya: Those employed in wealth-generating pursuits including agriculture, hold that the Aryan expansion was more consistent with multiple waves of trading, and industry; this wealth was to be generated in support of the small-scale migration. Brahman and Ksatriya Castes• The Aryans were believed to initially be pastoralists, interacting with the – Sudra: Those expected to furnish labor; initially, mainly consisting of those of indigenous, sedentary communities in mixed encounters, some indigenous descent, referred to as dasa in the Vedic texts confrontational, others negotiated. Accomplishments• Eventually, clans settled in fixed geographic areas and a process of • The Vedas: The Vedic Culture orally composed and later compiled in written form assimilation ensued, with the Vedic-equipped Aryans coming to govern the earliest known literature on the Indian subcontinent, the Vedas. The Vedas, the over the indigenous populations, as illustrated by the Caste system that earliest of which was the Rigveda, thought to have been composed sometime in the developed during this time. As the process of assimilation matured, the second half of the Second millennium BC, were the sacred texts of Vedic Caste distinctions changed from being based on language, ritual, and Brahmanism of the time and are the oldest canonical texts of the Hindu religion. The custom to being based on a more simplified premise of certain groups being four Vedas include (See Page 33 for more detail): entitled to respect and other groups being obligated to subordination. – Rigveda – Samaveda – Yajurveda – Atharvaveda Source: The Wonder That Was India, by A. L. Basham, Picador, 2004; Early India: From The Origins to AD 1300, by Romila Thapar, University of California Press, 2004; India: A History, by John Keay, Grove Press, 2000; www.wikipedia.org; Wikimedia Commons. 14 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 15. Please See Page 7 for a Complete List of DynastiesMorgan Stanley Smith Barney BACKGROUNDInvestment Strategy Iron Age Kingdoms: Mahajanapadas (600 – 300 BC)Brief History Symbols, Art, and Culture• Toward the end of the period of the Vedic Culture, a second wave of • Emergence of New Religious and Philosophical Sects urbanization in the Indian subcontinent, the first being that of the Harappan As urbanization and its accompanying social changes began to have Culture, began to spread across Northern India spurring the growth of an effect on society, new philosophies emerged to address issues kingdoms and republics, sixteen of which would come to be known as the insufficiently addressed by traditional Vedic Brahmanical ideas. Mahajanapadas (“Great Clan Territories”). Parks and groves on the outskirts of towns, known as kutuhala-• The Mahajanapadas included Kasi, Kosala, Anga, Magadha, Vrijji (or shalas, literally, the place for creating curiosity, attracted audiences Vajji), Malla, Chedi, Vatsa (or Vamsa), Kuru, Panchala, Machcha (or who observed philosophers debate competing ideologies, a distinct Matsya), Surasena, Assaka, Avanti, Gandhara, and Kamboja. feature of urban living and a sharp contrast from the private discourse of Vedic thought among Brahmans. Buddhism and Jainism• After subjugating the rival kingdoms of Kasi and Kosala as well as the are two sects from this period which developed into international Vrijji confederacy of republics, the Mahajanpada of Magadha came to religions. dominate the Ganges plain, capitalizing on control of the increased trade activity along the Ganges and Yamuna rivers to lay the foundations for the • The Fall of Republics and the Rise of Kingdoms subcontinent’s first imperial power, the Mauryan Empire. Prior to the proliferation of kingdoms, a form of governance characterized by a centralized government with the ruler’s sovereignty as its basis, it is believed that the clan-based Vedic Culture led to the development of gana-sanghas, chiefdoms andImportant Personages oligarchies considered to be republics. One of the more notable examples was the• Siddhartha Gautama • Mahavira (ca. 599 – ca. 526 BC) Vrijji confederacy, a collection of allied gana-sanghas which eventually succumbed (ca. 566 – ca. 486 BC) Considered by Jains to to the Magadha kingdom. Within the new construct of kingdoms, loyalty shifted from Also known as Gautama clan to Caste and king. A peasant economy began to emerge as those who produced Buddha, or Buddha, Siddhartha be the 24th and last tirthankara (“prophet”), and those who ruled were no longer connected through kinship ties and voluntary Gautama is considered the responsible for the tributes to those in power became compulsory taxes collected to support a founder of Buddhism after achieving enlightenment and present-day form of professional administration and army. discovering the “Middle Path.” Jainism. Accomplishments • Urbanization and Enabling Technologies: During the time of the Mahajanapadas,• Bimbisara (ca. 558 – ca. 493 BC) • Mahapadma Nanda urbanization gained a permanent foothold on the Indian subcontinent. A key enabler (ca. 450 – ca. 362 BC) of urbanization is the presence of a surplus in food production which is believed to The first Magadha king of have been brought about by technological advancements including: (i) the importance, Bimbisara, through The founder of the Nanda Dynasty of introduction of wet-rice cultivation (enabled by improved irrigation), which yielded strategic marriages and successful the Magadha Kingdom and the first a substantially larger harvest than previous methods; and (ii) the wider introduction of conquests, initiated the Kingdom of king drawn from the Sudra Caste. higher quality iron tools which not only led to more effective agricultural Magadha’s rise to prominence. implements but also extended into various other construction and craft activities. Source: The Wonder That Was India, by A. L. Basham, Picador, 2004; Early India: From The Origins to AD 1300, by Romila Thapar, University of California Press, 2004; India: A History, by John Keay, Grove Press, 2000; www.wikipedia.org; Wikimedia Commons. 15 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 16. Please See Page 7 for a Complete List of DynastiesMorgan Stanley Smith Barney BACKGROUNDInvestment Strategy Iron Age Kingdoms: Maurya Empire Key Dynasty (321 – 181 BC)Brief History Symbols, Art, and Culture• The Mauryan Empire began to coalesce into existence upon • Dhamma and Ashoka’s Pillar and Rock Edicts Chandragupta’s conquest of the outlying provinces of the Nanda Dynasty, After consolidating the Mauryan Empire’s control over the Indian the then torchbearer of the Magadha Kingdom. Eventually, Chandragupta subcontinent, Ashoka set out to instill a group of unifying principles, besieged the traditional Magadha heartland and successfully installed known as dhamma, across his empire which would represent a himself as the new leader of Magadha-based Kingdoms. common thread uniting the diverse populations under his rule. The• After defeating the hostile kingdom of Kalinga on India’s eastern coast concept of dhamma, above all, emphasized tolerance toward people (present-day Odisha), Chandragupta’s grandson, Ashoka, also known as and their beliefs and ideas. While Ashoka’s effort fell short of Ashoka the Great, renounced further conquests and turned his attention to creating a universal social attitude where the ethical behavior of one person toward another was the primary concern in any social effectively governing the diverse cultures within the Mauryan Empire, from interaction, the mere attempt of such a feat is notable and unique. the Persian-Hellenistic population in the Northwest, to the Kalingans in the The Lion Capital East, to the Tamil-speaking population in the South, among others. of a Pillar Edict The means by which Ashoka communicated his message of dhamma was through the Minor and Major Rock Edicts, edicts inscribed on• The vastness of the Mauryan Empire demanded strong central leadership strategically located rock surfaces (boulders and cave walls), and the from its king; however, after the death of Ashoka, a series of ineffective Pillar Edicts, edicts inscribed on well-polished sandstone monolithic rulers led to the quick decline of the Empire as outlying areas succumbed to pillars surmounted with an animal capital. The Pillar Edicts, meant to foreign control or rebellious local leaders, and control of the Magadha draw attention to their message, also represent an artistic statement heartland was usurped by the newly-formed Sunga dynasty. by the Empire, and reflect the advances in stone-cutting, carving, and A Rock Edict polishing techniques.Important Personages on a Boulder• Ashoka The Great (304 – 232 BC) Ashoka, also known as Ashoka the Great, was the third ruler of the Accomplishments Mauryan Empire, and the last leader of any importance. Ashoka ruled for • Unification and Administration of the Indian Subcontinent: The Mauryan Empire 37 years and maintained relative peace on the Indian subcontinent. After embarked on the first experiment of imperial governance in India. While witnessing the suffering caused by his conquest of Kalinga, Ashoka acknowledging that the centralized government described in the Arthashastra was became a practicing Buddhist and renounced further conquests. Ashoka is likely more of an ideal than a reality, it is generally believed that the Mauryan Empire notable as a historical figure for his commitment to distilling a social employed a complex administrative system to effectively manage, and expand, the ethic, transcendent of any one religion, throughout his empire. empire’s resources. The predominantly agrarian economy of Northern India was expanded and then taxed on the area of land cultivated as well as the produce. The• Kautilya (ca. 370 – ca. 280 BC) State encouraged the expansion of various craft associations and commercial According to tradition, Kautilya, also known as Chanakya, is the author of exchange, with the accompanying increases in tolls and duties flowing to the treasury. the famous Indian treatise on statecraft, Arthashastra. Kautilya is also Entire communities were relocated to found new settlements and, ideally, became a believed to have been Chandragupta’s mentor and guide in acquiring the greater source of revenue. These efforts represent a proactive attempt to restructure throne from the Nanda Dynasty and subsequently in maintaining and the economy, a hallmark of any empire that needs to maximize revenue to support the expanding the Mauryan Empire. empire’s administration. Source: The Wonder That Was India, by A. L. Basham, Picador, 2004; Early India: From The Origins to AD 1300, by Romila Thapar, University of California Press, 2004; India: A History, by John Keay, Grove Press, 2000; www.wikipedia.org; Wikimedia Commons. 16 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 17. Please See Page 7 for a Complete List of DynastiesMorgan Stanley Smith Barney BACKGROUNDInvestment Strategy Middle Kingdoms: Gupta Empire Key Dynasty (320 – 510 AD)Brief History Symbols, Art, and Culture• Thought to originate as a principality in the Western Ganges Plain, the • Literature Gupta family began its ascension to power when the patriarch of the During the Gupta period, Classical Sanskrit became the popular language of the dynasty, Chandra Gupta I married into the Lichchhavi family which government and the elite continuing as such through until the early Second controlled a kingdom in present-day Nepal. Millennium AD. A wealth of creative literature was composed during the Gupta• Samudra Gupta and Chandra Gupta II, the son and grandson, respectively, period and Kalidasa, generally regarded as one of the greatest poets and dramatists of Chandra Gupta I would, from the empire’s base in Magadha, expand the of the subcontinent, is believed to have composed his famous works including Gupta Empire to include all of Northern India and to extract homage from Meghaduta, a lyrical poem, and Abhijnana-shakuntala, a drama, during this time, kingdoms in the Deccan and the South. along with other notable writers including Bharavi, Shudraka, and Vishakhadatta.• The Gupta Empire began its decline in the mid-Fifth Century AD after the death of the son of Chandra Gupta II, Kumara Gupta, whose successors • Art could not defend the Gupta Empire as successfully as Kumara from the Sculpture and painting achieved classical heights as the two repeated invasions from a branch of the White Huns, the Hephthalites. The professions were increasingly looked upon with great esteem. court rivalries and breakaway feudatories that often seem to accompany an Sculpture during the period is known as Gupta increase in pressure from foreign invaders further weakened the empire. Sculpture and is characterized by soft contours, restrained ornamentation, and dignified repose. The stylistic quality in painting of the period is epitomized by the wall painting in the AjantaImportant Personages Caves, thirty rock cut caves which contain A Sculpture A Painting Buddhist art.• Chandra Gupta II ( Unknown – 415 AD) of Standing Buddha in the Ajanta Caves Chandra Gupta II ruled from 375 AD through 415 AD • Science and it is generally considered that the Gupta Empire Mathematics, astronomy, medicine, and astrology, among other disciplines, all reached its zenith during his reign due to his expansion flourished within the formal education systems extant in Brahman ashramas of the empire into Western India (present-day Gujarat) (“hermitages”) and Buddhist and Jaina monasteries. Notable achievements include after conquering the Shakas, and for his generous the remarkably accurate calculation of the solar year (365.3586805 days) and the A Gold Coin patronage of literature and the arts which set the stage calculation of pi to four decimal places (3.1416). from Reign of for a classical period on the Indian subcontinent wherein Chandra Gupta II Accomplishments even the minted gold coinage could be described as a • Fostering a Classical Period: Under the rule of the Gupta Empire and with the miniature piece of sculpture. support of its patronage, literature, art, and science on the Indian subcontinent achieved impressive heights, leading the period to often be described as a classical epoch of Indian history. Source: The Wonder That Was India, by A. L. Basham, Picador, 2004; Early India: From The Origins to AD 1300, by Romila Thapar, University of California Press, 2004; India: A History, by John Keay, Grove Press, 2000; www.ccrtindia.gov.in; www.wikipedia.org; Wikimedia Commons. 17 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 18. Please See Page 7 for a Complete List of DynastiesMorgan Stanley Smith Barney BACKGROUNDInvestment Strategy Pala Empire Indicated Middle Kingdoms: Pala Empire in Purple (750 – 1043 AD)Brief History Symbols, Art, and Culture• The Pala dynasty was founded by Gopala in 750 AD. According to • Buddhist Centers of Learning tradition, Gopala came to power through some sort of selection, or even election, process. It is generally believed that within the Pala Empire there were five large Mahaviras (“Great Monasteries”)• The Pala Empire, based in Eastern India, was a contemporary of the which formed a network of Buddhist learning in which Rashtrakuta Empire in the Deccan and the Pratiharas Empire in the scholars could easily move between institutions. This Northwest. These three empires appeared to be relatively evenly matched network of Mahaviras attracted students from several and seemed to be in a continual state of war as all three vied to control what regions including Kashmir, Nepal, Tibet, China, was viewed as the seat of a potential subcontinental empire, Kanauj, a city Burma, Cambodia, Sri Lanka, and Indonesia. The two in present-day Uttar Pradesh. most important of these Mahaviras are thought to be• Under the rule of Dharmapala and then Devapala, the Pala Empire Ruins of Nalanda and Vikramashila. It is Nalanda University expanded to include Kanauj as well as kingdoms in Assam and Orissa, and believed that at its peak, Nalanda possibly others as distant as the far south and the extreme northwest. University housed up to 10,000• The Pala Empire, the last major Indian dynasty to espouse Buddhism, students and 2,000 professors. entered a gradual decline beginning in the 10th century AD, and after one Nalanda consisted of eight last expansion under the ruler Mahipala, the Pala Empire faced defeat at the separate compounds, ten temples, hands of the Chola Dynasty from Southern India and gave way to the Sena meditation halls, classrooms, lakes, Dynasty upon Mahipala’s death. parks, and a nine-story library.Important Personages• Gopala ( Unknown – 770 AD) Gopala was the founder of the Pala Dynasty and ruled from Ruins of A Bodhisattva Statue at Vikramashila University Nalanda University 750 – 770 AD. According to tradition, Gopala ascended to power through either a selection or an election process. Gopala’s rise to power echoes the early Buddhist notions of a contractual relationship inherent in kingship. Accomplishments • Last Major Buddhist Indian Dynasty: The Pala Empire was the last major Indian• Dharmapala (Unknown – 810 AD) dynasty to espouse Buddhism. The generous patronage bestowed by the dynasty on Dharmapala succeeded Gopala in 770 AD and ruled until 810 AD and Buddhist centers of learning made the Bengal region renowned as a seat of Buddhist expanded the Pala Empire to include the symbolic city of Kanauj. A thought and the famous universities that attracted students from across southeast Asia strong patron of Buddhism, Dharmapala established numerous were considered instrumental in propagating Buddhism as a world religion. Buddhist learning centers including the famous Vikramashila. Source: The Wonder That Was India, by A. L. Basham, Picador, 2004; Early India: From The Origins to AD 1300, by Romila Thapar, University of California Press, 2004; India: A History, by John Keay, Grove Press, 2000; “Really Old School,” by Jeffrey E. Garten, The New York Times, December 9, 2006; www.wikipedia.org; Wikimedia Commons. 18 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 19. Please See Page 7 for a Complete List of DynastiesMorgan Stanley Smith Barney BACKGROUNDInvestment Strategy Islamic Sultanates: Delhi Sultanate (1206 – 1526 AD)Brief History Symbols, Art, and Culture• The Delhi Sultanate encompasses five Muslim dynasties based in Delhi • The Infusion of Muslim Architectural Thought from the 13th Century AD through the early 16th Century AD, including: the Mamluk (“Slave”) Dynasty (1206 – 1290 AD); the Khalji Dynasty (1290 – Along with the Delhi Sultanate and its Turkish and Afghan 1320 AD); the Tughluq Dynasty (1320 – 1413 AD); the Saiyyid Dynasty rulers came a strong infusion of Turkish, Arab, and Persian (1414 – 1451 AD); and the Lodi Dynasty (1451 – 1526 AD). influences into Indian culture. This is well reflected through the• Emanating from Ghazni in present-day Afghanistan, Muhammad of Ghor changes in architectural style during the Delhi Sultanate. While swept in through northwest India to seize control of Delhi and the upper commonalities in the architectural styles of Muslim and Hindu Ganges-Yamuna Doab, and upon his death, his Turkish commander, Qutb- places of worship existed including a focus on ornamental ud-din Aybak assumed control and founded the Mamluk Dynasty. decoration and open courts surrounded by colonnades, there Qutub Minar• Under the Khalji Dynasty, the Delhi Sultanate was able to sweep down into were also striking contrasts including the spaciousness of a the Deccan and Southern India to exact one-off tributes from regional mosque prayer chamber juxtaposed with the smallness of the kingdoms; however, any semblance of a projection of authority outside shrine in a Hindu temple. The Muslim practice of burial as Northern India was not achieved until the Tughluq Sultan Muhammad Bin opposed to the Hindu practice of cremation was manifested in Tughluq was able to consolidate Muslim rule in the Deccan and beyond, the construction of Sultan Ghari in 1231 AD, the first Muslim however brief. tomb in India. From a technical perspective, architectural• After the fall of the Tughluq Dynasty and under pressure from Mughal contributions include the use of true arches (as opposed to corbel incursions, the influence of the Delhi Sultanates was greatly diminished as arches), domes, pendentives (the constructive device permitting the Saiyyid Dynasty and the Lodi Dynasty struggled to project power the placing of a circular dome over a square room), and the use beyond the immediate area surrounding Delhi. of concrete and lime mortar.Important Personages• Muhammad bin Tughluq (Unknown – 1351 AD) Ruling from 1325 through 1351 AD, Muhammad bin Tughluq is generally considered one of India’s most complex and controversial rulers. A Pendentive (Circled in Red) of the Muhammad was exceptionally well-educated, composed verses of Hagia Sophia in Turkey distinction, was an authority on medicine and mathematics, and regularly outwitted his advisors. Muhammad embarked on several failed policy Mausoleum within the Comparison of a “True” Arch Tughluqabad Citadel (left) and a Corbel Arch (right) experiments including forcibly trying to relocate the capital of Delhi southward to Daulatabad in present-day Maharashtra. Accomplishments• Raziya Sultana (Unknown – 1240 AD) • Resistance of the Mughal Invasion: The Delhi Sultanates were noted for their ability Raziya Sultana was a female Sultan regarded as a “great monarch,” who to resist repeated Mughal incursions into Northern India. Specifically, Ala-ud-din of was “wise, just, and generous,” and a “leader of her armies.” Her reign was the Khalji Dynasty was able to not only resist Mughal advances, but was able to push short-lived, lasting from 1236 through 1240 AD. into Mughal territory in Ghazni, Kabul, and Kandahar in present-day Afghanistan. Source: The Wonder That Was India, by A. L. Basham, Picador, 2004; Early India: From The Origins to AD 1300, by Romila Thapar, University of California Press, 2004; India: A History, by John Keay, Grove Press, 2000; www.wikipedia.org; Wikimedia Commons. 19 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 20. Please See Page 7 for a Complete List of DynastiesMorgan Stanley Smith Barney BACKGROUNDInvestment Strategy Mughal Era: Mughal Empire Key Dynasty (1526 – 1857 AD)Brief History Symbols, Art, and Culture• The Mughal Empire was founded on the conquests of Babur (“The Tiger”), a • Mughal Architecture Mongol ruler who was based in present-day Afghanistan. Upon hearing of the dissension and disarray within the last Delhi Sultanate (the Lodi Dynasty), Babur The Mughal Empire is noted for its large contribution to architecture on the Indian launched a successful campaign against Delhi. Babur and his son Humayun subcontinent. Humayun’s Tomb represents the first distinct example of Mughal architecture expanded Mughal control throughout the heartland of Northern India. and was heavily inspired by Persian architecture. Akbar’s conciliatory rule is reflected through the blending of Hindu and Islamic construction elements. The Mughal Emperor Shah Jahan is• Humayun was unable to hold the Mughal Empire’s gains and was forced into exile considered to be the greatest builder of the Mughal Empire, responsible for the construction of by an Afghani empire based in Eastern India led by Sher Shah. After regrouping, the Red Fort, the Jama Masjid in Delhi, and the Taj Mahal. Shah Jahan’s most famous with the assistance of the Shah Tamasp, the Safavid ruler of Iran, Humayun was construction, the Taj Mahal, is noted for its “ethereal and dreamlike lightness” and its delicate able to retake Delhi and reestablish Mughal influence in Northern India. aura serves as a contrast to the sturdy construction of Akbar.• Akbar, Humayun’s son, further expanded the Mughal Empire; Akbar is noted primarily for his even-handed governance rather than for his conquests; promoting an environment of equality among Muslims and Hindus in an effort to transcend regional and religious differences in the creation of a more united Indian empire.• Akbar’s great-grandson, Aurangzeb, successfully expanded the Mughal empire to its furthest reaches; at the same time, he also reversed all of the social reforms Humayun’s Tomb in Delhi introduced by Akbar, leading to restlessness among his non-Muslim constituents, which included Shivaji, the founder of the Maratha Empire. The Mughal Empire’s Buland Darwaza Built by Taj Mahal in Agra influence waned after Aurangzeb’s death in 1707 as authority appeared to devolve Akbar in Fatehpur Sikri to individual provinces. • Mughal Painting Through their patronage, the Mughal emperors cultivated a distinct• The decline of the Mughal Empire deepened after the defeat suffered at the hands of the British at the Battle of Buxar in 1764, which resulted in the loss of Bengal, and style of painting which was the result of a fusion of the indigenous the decline was finally confirmed after the British entered Delhi in 1803 and placed Indian style of painting and the Safavid school of Persian painting the empire under British protection, stripping the Mughal Emperor, Shah Alam II of (miniatures). The Mughal school of painting was primarily secular his army. Fifty-four years later, the last Mughal figurehead would be exiled after the and aristocratic, generally consisting of miniatures (book failed Great Rebellion of 1857. illustrations, court scenes, and genre scenes), and was Illustration from A Mughal the Hamzanama characterized by naturalism and realism. IllustrationImportant Personages Accomplishments• Akbar (1542 – 1605 AD) • Reforming Governance Across the Indian Subcontinent: The successful administration of an empire which spanned nearly the entire Indian subcontinent was greatly enabled by the Akbar ascended the throne in 1556 at the age of 13. Unlike his predecessors, Babur and Humayun, Akbar was born in India and his adoption of government reforms including the division of provinces into districts directly rule appeared to reflect his opinion of his Indian subjects as responsible to the Emperor and the division of authority amongst civil, military, and religious countrymen. Akbar’s marriages to the daughters of various Rajput officials, all of whom were subject to rotation. Revenue receipts were drastically improved by (Hindu) chiefs represented his desire to create a united empire. economic reforms including new land surveys, new calculations of Further illustrating this goal, Akbar discontinued several estimated yields, collection in cash instead of payment in kind, standard discrimantory measures against Hindus, including a tax on pilgrims weights and measurements, and the re-drafting of revenue districts on the and the jizya, a tax imposed on non-Muslims. basis of the similarity of soils and climates. However, these reforms proved to be transitory in the face of a weak leadership and in transition periods. Flag of the Mughal Empire Source: The Wonder That Was India, by A. L. Basham, Picador, 2004; Early India: From The Origins to AD 1300, by Romila Thapar, University of California Press, 2004; India: A History, by John Keay, Grove Press, 2000; www.ccrtindia.gov.in; www.wikipedia.org; Wikimedia Commons. 20 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 21. Please See Page 7 for a Complete List of DynastiesMorgan Stanley Smith Barney BACKGROUNDInvestment Strategy Maratha Empire Mughal Era: Maratha Empire Indicated in Yellow and Western Ghats (1674 – 1818 AD) Outlined in RedBrief History Symbols, Art, and Culture• The Maratha Empire traces its roots to Shivaji, who in the mid-17th century began to • Martial Tradition establish the foundations of a Maratha homeland in the Western Ghats (present-day Maharashtra), capturing, losing, and re-capturing several forts. In 1674, Shivaji In the 16th century, the Maratha people were characterized as a martial elevated himself to kingship and declared the Maratha homeland independent from Hindu aristocracy based in present-day Maharashtra. The highly mobile Mughal rule. cavalry units of the Marathas were heavily relied upon by the various• Shortly thereafter, Aurangzeb, the Mughal Emperor, initiated a decades-long Deccan Sultanates in their conflicts with the Mughal Empire as well as offensive against the Marathas as well as the Deccan Sultanates of Bijapur and among each other. Shahji Bhonsle was a legendary Marathan General Golconda. It was during this campaign that Aurangzeb extended the Mughal Empire who served under the Ahmadnagar Sultanate and the Bijapur Sultanate. to its greatest extent; however, by 1716, a few years after Aurangzeb’s death, His son, Shivaji, the founder of the Maratha Empire, would draw on Maratha influence extended across the entire peninsula and with the assistance of this martial tradition and led the Marathas in striking out on their own the Mughal governor of the Deccan, the Marathas marched into Delhi and their to establish a homeland. The martial tradition of the Marathas was also Mughal ally, Husain Ali Khan, installed a new emperor who sanctioned a treaty between the Marathas and the Mughals which ended the war between the two and Engraving of a recognized by the succeeding subcontinental power, the British Maratha Soldier Empire. The first Maratha unit, the Maratha Light Infantry, was formed effectively ended Mughal power in the Maratha homeland and the rest of the Deccan. in 1768. The battle cry of the Maratha Light Infantry is “Bol Shri Chattrapati Shivaji Maharaj ki Jai!” (“Cry Victory to Emperor Shivaji!)• Over the next two decades, Maratha forces raided lands across the subcontinent with impunity; the territory gained was not subject to tight central control, and it would be more accurate to describe the Maratha State as a Confederacy.• The Second Maratha War (1803-1804) reduced Maratha power as control over territories in the Deccan, Gujarat, and Orissa was lost to British forces. The Third Maratha War (1817-1818) effectively ended Maratha power as the British asserted their political supremacy in the Maratha’s remaining territories in Central India.Important Personages• Shivaji (1630 – 1680 AD) Shivaji was the founder of the Maratha Empire and he elevated himself Engraving of a Regimental Ensign of the Maratha Light Infantry to kingship in 1674. Shivaji began laying the foundation for a Maratha Maratha Cavalry Soldier Maratha Light Infantry homeland at the early age of 17, storming and tricking his way into several forts around present-day Pune. Shivaji offered a more tolerant alternative to the discriminatory stance of Aurangzeb’s Mughal rule, with Hindus as well as Muslims serving under Shivaji’s standard. Accomplishments • Last Major Indian Empire to Espouse Hinduism: One of the catalysts for the rise of• Baji Rao I (1700 – 1740 AD) the Maratha Empire was its characterization as a Hindu empire Baji Rao I was the Peshwa (“Prime Minister”) of the Maratha Empire during a time when the Mughal Empire was instituting several from 1720 through 1740 AD. Baji Rao I has been described as being discriminatory measures against the Hindus under its domain. “after Shivaji, the most charismatic and dynamic leader in Maratha The Maratha Empire would be the last major Indian Empire history.” Baji Rao I, based in Pune as were all Peshwas, was able to characterized as Hindu to control large swaths of the Indian Flag of the maintain a degree of central control over the burgeoning Maratha subcontinent. Maratha Empire Empire during his time in office. Source: The Wonder That Was India, by A. L. Basham, Picador, 2004; Early India: From The Origins to AD 1300, by Romila Thapar, University of California Press, 2004; India: A History, by John Keay, Grove Press, 2000; www.wikipedia.org; Wikimedia Commons. 21 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 22. Please See Page 7 for a Complete List of DynastiesMorgan Stanley Smith Barney BACKGROUNDInvestment Strategy Colonial Era: Company Rule and the British Raj (1757 – 1947 AD)Brief History Symbols, Art, and Culture• The British presence in the Indian subcontinent can be traced back to the British East India • The Foundation of India’s Modern Educational Infrastructure Company (“The Company”), founded in 1600 for the purpose of contesting the Portuguese monopoly in the Indonesian spice trade. The Company opened its first British trading post in In the early 19th century, Catholic missionaries identified increased levels of education and literacy as Surat in 1612. The Company was politically insignificant through the 17th century, as highlighted key to their missionary efforts. In 1835, English was made the official language of government and by the Indian Mughal’s relatively easy victory during the Child’s War (1686-1690). education. Beginning with the University of Calcutta in 1857, multi-disciplinary and secular universities with Western-style curricula were opened across the subcontinent. The Indian graduates of these• The Company’s emergence onto the political scene is marked by a series of events in the 18th universities, as well as those wealthy enough to attend university in Britain, formed a new English- century. In 1716, the Company was granted a farman, an Mughal Imperial Directive which explicitly detailed the Company’s territorial and commercial rights and legitimized action against educated, urban elite that would serve as the leaders of the Indian independence movement, invoking the anyone infringing on those rights. In 1757, after successfully intriguing to replace the Nawab of language and principles of Western liberal thought introduced by the British. Bengal, the Company effectively ruled Bengal by proxy. Rule by proxy was replaced by rule by formal governorship when in 1765 the Mughal Emperor inducted the Company (specifically Robert Clive) as diwan, or chancellor, of Bengal in the wake of the Battle of Buxar.• Over the next hundred years, the Company ruled from its Bengal Presidency, based in Calcutta (present-day Kolkata), and expand Company control within the subcontinent. In 1858, in the aftermath of the Great Rebellion of 1857 by Indian sepoys (Indian Soldiers who were employed by the Company), Company rule came to an end when all rights previously enjoyed by the Company were transferred back to the British Crown.• In the second half of the 19th century, the British Raj solidified its rule by appeasing the landed University of Mumbai, University of Madras University of Calcutta, Indian aristocracy with titles and official inclusion into the British hierarchy. The initiative for ca. 1870 ca. 1870 swaraj (“self-rule”) passed from the leaders of the old dynastic order to a British-educated, urban- based elite which manifested itself through the first meeting of the Indian National Congress in 1885.• The attempted partition of the province of Bengal along religious lines, lasting from 1905 through 1911, inspired another instance of unified action as the Swadeshi (“Of Our Own Country”) Movement, a movement based on self-reliance and the boycott of British goods, swept across the nation. This protest foreshadowed the mass participation in countrywide protests and civil- disobedience that eventually led to Indian independence. Seal of the Seal of the Seal of the University of Mumbai University of Madras University of CalcuttaImportant PersonagesBritish Indian A Unifying Influence• Sir William Jones (1746 – 1794 AD): • Dadabhai Naoroji (1825 – 1917 AD): • The British Empire was not unique in its dominion over the Indian subcontinent. Several foreign and Considered to be the pioneer of Indo- Known as the “Grand Old Man of India;” a Parsi domestic empires had come and gone, several of which lasted much longer than the British Raj. However, Aryan linguistics for his study of Sanskrit; businessman from Bombay; first Asian to serve in the British Raj was unique in that it supported an empire whose representatives possessed an unfaltering first president of the Bengal Asiatic the British Parliament; co-founder of the Indian loyalty to Company, Crown, and country. In the absence of messy succession crises, usurpers, and Society; translated Kalidasa’s Sakuntala National Congress. mischievous provincial governors, the British Raj was successfully able to govern the Indian subcontinent into English. • Mohandas K. Gandhi (1869 – 1948 AD): in relative stability while promoting commerce (albeit commerce which did not benefit the majority of• Allan Octavian Hume (1829 – 1912 AD): A prominent Indian independence figure; noted Indians). One would be hard-pressed to make the case that historically the Indian subcontinent was A Scottish ornithologist who served as for leading protests characterized by non-violence characterized as a single entity. Instead, it would be more accurate to describe the natural state of affairs as Secretary of Agriculture in the Calcutta and civil-disobedience (See Page 54). one of regionalization. In this context, the all-encompassing nature of national protests leading up to Indian Governemnet; outspoken liberal who • Jawaharlal Nehru (1889 – 1964 AD): independence are extraordinary. Unified foreign rule, as represented by the British Raj, demanded a unified presided over the first Indian National A prominent Indian independence figure alongside response from Indians, transcending the traditional social barriers of Caste, class, religion, and geography, Congress. Gandhi; served as independent India’s first Prime and presaging the establishment of the world’s largest democracy. Minister (See Page 55). Source: The Wonder That Was India, by A. L. Basham, Picador, 2004; Early India: From The Origins to AD 1300, by Romila Thapar, University of California Press, 2004; India: A History, by John Keay, Grove Press, 2000; www.wikipedia.org; Wikimedia Commons. 22 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 23. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Religion in India A Birthplace of Religions Overview • As defined by its constitution, India is a “sovereign socialist secular democratic republic.” The freedom of profession, practice, and propagation of religion is a fundamental right guaranteed by Article 25 of the Constitution. While India has no official India’s Religious Demographics religion, religion has played an important role throughout India’s history, and it is the birthplace of four world religions, which, As of the 2001 Census of India in total, are practiced by approximately 21% of the world’s population(2). There are six religions individually recognized by India’s census, including: Buddhism Jainism Other Not Stated – Hinduism (Indigenous): Hinduism is the oldest of India’s religions, with Hindu tradition tracing it roots back to the Vedic 0.8% 0.4% 0.6% 0.1% culture (1200 BC – 600 BC) of Northern India, and possibly earlier. Hinduism is also the most widely practiced religion in India, with adherents to Hinduism accounting for 80.5% of the total Indian population(1). The Bharatiya Janata Party (BJP) is one of the two major national political parties in India and espouses Hindtuva, or Hindu nationalism. Sikhism 1.9% – Jainism (Indigenous): Jainism is thought to have been founded sometime between the 9th century and 6th century BC, with the last tirthankara (prophet), Mahavira, responsible for its present-day form. Jainism is the 6th most widely practiced religion in Christianity India, accounting for 0.4% of the total Indian population(1), and is most heavily concentrated in the states of Maharashtra, 2.3% Rajasthan, Madhya Pradesh, and Gujarat. Islam Hinduism – Buddhism (Indigenous): Buddhism traces its roots to Siddhartha Gautama’s awakening under a Bodhi tree in the modern-day 13.4% 80.5% Indian state of Bihar in the 6th century BC. Despite being the 4th most widely practiced religion in the world, Buddhism is only the 5th most widely practiced religion in India, accounting for only 0.8% of the total Indian population(1), and is most heavily concentrated in the state of Maharashtra, as well as the Northern and Northeastern states of Sikkim, Arunachal Pradesh, and Jammu and Kashmir. Global Presence of India’s – Christianity: The arrival of Christianity is generally attributed to Saint Thomas’s travels to India in the 1st century AD. Christianity is the 3rd most widely practiced religion in India, accounting for 2.3% of the total Indian population(1), and is most Indigenous and Other Religions heavily concentrated in the Northeast and Southern India. As a Percentage of World Population(2) – Islam: Beginning in the 7th century AD, Islam progressively expanded across the Indian subcontinent and with the creation of Other Non-Religious Atheist the Delhi Sultanate, it became the primary ruling religion, remaining so until the fall of the Mughal Empire in the early 19th 11.3% 9.4% 2.0% century. Islam is the 2nd most widely practiced religion in India, accounting for 13.4% of the total Indian population(1). – Sikhism (indigenous): Sikhism was founded in the 15th century by Guru Nanak Dev in the Punjab region. Sikhism is the 4th Judaism most widely practiced religion in India, accounting for 1.9% of the total Indian population(1), and is most heavily concentrated 0.2% Christianity in the Punjab region. 33.4% Sikhism Symbols of the Religions in India 0.4% Buddhism Hinduism Islam 7.1% 13.8% 22.4% The ‘Om’ symbol The Jain Emblem Dharmacakra Holy Cross Crescent Moon and Star Ik OnkarSource: Census of India; “UN World Population Prospects: 2010 Revision”, United Nations Population Division, A Symbol of Hinduism A Symbol of Buddhism A Symbol of Christianity A Symbol of Islam A Symbol of Sikhism May 3, 2011 Note: 1. Data are as of the 2001 census of India. 2. Data are calculated using UN World Population Prospects – 2010 Revision in conjunction with the 2009 estimates of global religious demographics from the CIA World Factbook. Source: Census of India; www.buddhanet.net; www.bbc.co.uk; www.wikipedia.org; Wikimedia Commons. 23 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 24. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Hinduism Purusharthas, Moksha, and Yoga Aumkara, The ‘Om’ symbol in Devanagari scriptBrahman OverviewBrahman is a Sanskrit term which refers to • Hinduism is generally considered to be the oldest living religion in the world with some of its traditions possibly pre-datingthe Supreme Being described in the sacred the Vedic culture (1200 BC – 600BC); Hinduism is also often described as a ‘way of life,’ or ‘a family of religions.’Hindu text of Upanishads. Brahman is • Hinduism represents the third largest religion in the world, with approximately 965 million adherents(1).described as a transcendent power whichpervades everything. • While not all-encompassing of the variety of traditions of which Hinduism consists, there are four major denominations widely identified with Hinduism, including: (i) Vaishnavism; (ii) Shaivism; (iii) Shaktism; and (iv) Smartism. The two mostGenerally, all of the deities in the Hindu popular denominations are Vaishnavism, which reveres Vishnu above all other deities, and Shaivism, which reveres Shivareligion are considered to be forms and above all other deities.expansions of Brahman. • Hinduism ascribes to a process of reincarnation, called samsara, over which acts the concept of karma, the belief that every action has an equal reaction. By attaining moksha, one can liberate the soul from the cycle of karma and samsara. • Hinduism has no single founder or religious authority, as its diverse set of beliefs and practices have evolved from a number of sacred Hindu texts.Trimurti Select Sacred Hindu TextsThe Trimurti is a triad of deities includingBrahma, Vishnu, and Shiva, who, as The Vedas The Bhagavad Gita (“Song of God”)extensions of the transcendent Brahman, are • The Vedas represent the highest authority in the Hindu knowledge • Included within the sixth book of theresponsible for creation, sustenance, and system and are made up of four compositions, each of which is organized Mahabharata, the world’s longest poemdestruction, respectively, within the into four parts (See Page 33): • Spoken on the battlefield of theuniverse. – The Rigveda Mahabharata War by Lord Krishna to – The Samaveda Arjuna – The Yajurveda • A comprehensive summary of Vedic – The Atharvaveda thought, including the five basic truths Purusharthas – Aims of Life Attaining Moksha – Three Paths, One Goal • The Purusharthas are four aims of life to be pursued in • Bhakti Yoga: Devotion for God; for the heart-being order to attain fulfillment: • Jnana Yoga: Pursuit of knowledge in the pursuit of The Trimurti Alongside Their Consorts – Dharma: Righteousness truth; for the intellect-beingSource: www.bbc.co.uk; Wikimedia Commons. – Artha: Wealth • Karma Yoga: Fulfillment of responsibilities as an – Kama: Fulfillment of Desire individual and service to fellow beings; for the – Moksha: Liberation social-being Note: 1. Data are calculated using UN World Population Prospects – 2010 Revision in conjunction with the 2009 estimates of global religious demographics from the CIA World Factbook. Source: www.hindupedia.com; www.hinduism.iskcon.org; www.bbc.co.uk; www.wikipedia.org; Wikimedia Commons. 24 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 25. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Buddhism The Pursuit of Nirvana Through the ‘Middle Path’ The Dharmachakra, A Representation of the ‘Eightfold Path’ Siddhartha Gautama Overview (566 – 486 BC) • Buddhism is considered both a religion and a philosophy, or way of life, and tradition traces its founding back approximately 2,500 years to Siddhartha Gautama’s (commonly known as Buddha) quest for enlightenment in the 6th century BC. • Buddhism is the fourth largest religion in the world, with approximately 500 million adherents(1). • Buddhism is composed of two major traditions, the older Theravada tradition (“Doctrine of the Elders”) popular in Southeast Asia (Sri Lanka, Cambodia, Thailand, Laos, and Myanmar) and the Mahayana tradition popular in East Asia (Tibet, China, Taiwan, Japan, Korea, and Mongolia). • Mahayana Buddhism is the larger of the two traditions and includes various schools of thought including Zen Buddhism, Tibetan Buddhism, and Pure Land Buddhism. • The ‘Eightfold Path’, also known as the ‘Middle Path’, is the Fourth Noble Truth of Buddhism. The ‘Middle Path’ to the ultimate goal of enlightenment, or Nirvana, as pursued by adherents of Buddhism, can be summarized as follows: – Morality (Sila): Leading a moral life – Concentration (Samdhi): Being mindful and aware of thoughts and actions A Statue of Buddha – Wisdom (Panna): Developing wisdom and understandingSiddhartha Gautama (ca. 566 – ca. 486 BC), The Four Noble Truthsalso known as Gautama Buddha, or Buddha, isconsidered the founder of Buddhism. Born 1• Dukkha – The Truth of Suffering: 2 Samudāya – The Truth of the Origin of Suffering: •into a royal family, Gautama lived a privilegedlife as a prince; according to Buddhist • Physical suffering including birth, sickness, old age, • The root of all suffering comes in three forms:tradition, at the age of 29, during Gautama’s and death – Greed: A state of lack, need, and wantfirst visits outside of the royal estate, he • Mental suffering including separation from loved – Hatred: A state of dissatisfaction, frustrated desireencountered an old man, a sick man, and a ones and frustrationcorpse. Shortly thereafter, Gautama set out to – Delusion: A state of confusion, bewilderment, andseek enlightenment. At the age of 35, while helplessnessseated under a Bodhi tree, Gautamadiscovered the ‘Middle Path’ and attained 3• Nirodha – The Truth of the Cessation of Suffering: 4• Magga – The Truth of the Path to the Cessation Ofenlightenment and from that day forward • Acknowledgment that liberation from suffering, a Suffering:would be known to his followers as Buddha, state of nirvana, is possible • The pursuit of the ‘Eightfold Path,’ also known as the“The Awakened One.” Buddha devoted the ‘Middle Way’rest of his life to teaching the principles of • Nirvana, the ultimate goal of Buddhism, literallyBuddhism. translates to “becoming extinguished” or “blowing • The ‘Middle Way’ avoids both asceticism and out,” in a reference to the Three Roots of Evil, also indulgence and the elements of the path do not occurSource: www.buddhanet.net; www.bbc.co.uk; Wikimedia Commons. known as the Three Fires in a linear fashion, but instead arise together Note: 1. Data are calculated using UN World Population Prospects – 2010 Revision in conjunction with the 2009 estimates of global religious demographics from the CIA World Factbook. Source: www.buddhanet.net; www.bbc.co.uk; www.wikipedia.org; Wikimedia Commons. 25 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 26. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Sikhism and Jainism Two of India’s Four Indigenous Religions Sikhism JainismOverview Overview• Sikhism was founded in the 15th century by Guru Nanak Dev • Jainism is thought to have been founded sometime between in the Punjab region of the Indian sub-continent. the 9th century and 6th century BC, with the last tirthankara• Sikhism is the fifth largest religion in the world, with Khanda (prophet), Mahavira (599 – 526 BC), responsible The Jain Emblem A Symbol of Sikhism for its present-day form. approximately 25 million adherents(1).• Sikhism is a monotheistic religion featuring beliefs in reincarnation with the • Most adherents of Jainism live in India, where, according to the 2001 Census of ultimate goal of total knowledge and union with God in order to break the cycle India, Jains accounted for 0.4% of the population. However, it has been of birth, life, and rebirth. suggested that this number may understate the Jain population as many Jains identify themselves as Hindu.• Modern-day Sikhism took shape from the 15th century to the 17th century during the time of the Ten Gurus. The tenth Guru, Guru Gobind Singh, declared the • Within Jainism, there are no gods or spiritual beings; according to Jain tradition, Guru Granth Sahib, a compilation of teachings from past Gurus, to be his there have been 24 tirthankaras who have preached to others regarding the path successor, an eternal Guru. towards moksha (liberation).• In 1699, Guru Gobind Singh created the Khalsa, which • Jainism features beliefs in reincarnation and further believes that moksha, or today represents the global community of Sikhs who liberation from the reincarnation cycle, is the ultimate goal of the soul. have been through the Amrit Ceremony of initiation. • Known as the ‘Three Jewels,’ the three guiding principles Once a part of the Khalsa, a Sikh must wear the 5 Ks: of Jainism include: (i) the Right Perception (free of (i) Kesh (uncut hair); (ii) Kara (a steel bracelet); preconceptions); (ii) the Right Knowledge (iii) Kanga (a wooden comb); (iv) Kaccha (cotton (accurate and sufficient); and (iii) the Right Conduct. underwear); and (v) Kirpan (steel sword). • The Agamas, a compilation of Mahavira’s teachings,• There are five vices which all Sikhs must overcome, represent the sacred texts of Jainism. Originally, these texts including: (i) lust; (ii) greed; (iii) attachment to the Painting of All Ten Gurus with were completely memorized as Jain monks and nuns material world; (iv) anger; and (v) pride. Guru Nanak Dev at the Center were not allowed to possess religious books until Painting of Mahavira the 4th century BC. The Three Duties The Five Anuvratas (“Limited Vows”) • Kirt Karna: Honest labor • Ahimsa (Non-Violence) • Vand Chhakna: Charity and caring for others • Satya (Truthfulness) • Achaurya (Non-Stealing) • Nam Japna: Meditation on the Divine Name, prayer • Bramacharya (Chastity) • Aparigraha (Non-Possession) Source: www.bbc.co.uk; www.sikhmissionarysociety.org; www.wikipedia.org; Wikimedia Commons. Source: www.bbc.co.uk; www.wikipedia.org; Wikimedia Commons. Note: 1. Data are calculated using UN World Population Prospects – 2010 Revision in conjunction with the 2009 estimates of global religious demographics from the CIA World Factbook. 26 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 27. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Yoga “Yoking” or “To Unite” in SanskritHatha Yoga OverviewHatha-Yoga consists of the asana (“seat”) • Yoga is one of the six astika (“orthodox”(1)) darsanas (“schools”) of Indian philosophy, including: (i) Sāmkhya; (ii) Yoga;and pranayama (“breath control”) limbs (iii) Nyāya; (iv) Vaisesika; (v) Mimāmsā; and (vi) Vedānta.of Ashtanga-Yoga. Hatha-Yoga • From a broader perspective, yoga represents a generic term meant to signify a path requiring some combination of mental,(“Discipline of Force”), represents the physical, and spiritual discipline.most commonly encountered form of yoga • The ultimate purpose of yoga, more specifically known as Raja-Yoga, or Ashtanga-Yoga, is to facilitate the attainment ofin Western society. With a focus on moksha or liberation from the cycle of reincarnation, and union with the Supreme Being. The actual attainment of moksha mustmastery of the body, Hatha-Yoga has been be pursued through three paths, Bhakti-Yoga (devotion), Jnana-Yoga (knowledge), and Karma-Yoga (action).pursued in its own right as a form of • Elements of Ashtanga-Yogic practice are thought to have roots tracing back to the Vedic Culture (1200 – 600 BC).exercise. However, the intended purpose • The yoga process is described in the Yoga Sutras, thought to be compiled by Patanjali around the second century BC, and isof Hatha-Yoga is the awakening of shakti characterized as Ashtanga-Yoga (“eight-membered yoga”).(the dormant energy of Shiva). Shakti is Ashtanga-Yoga: The “Eight-Membered Yoga”composed of a series of chakras(“wheels”) which rise from the lower • 2 Niyama (“Observance”): • 3 Asana (“Seat”): • 4 Pranayama (“Breath Control”):middle of the human body to the top of • Shaucha: Cleanliness of • A series of postures intended to • A series of breathing exercisesthe head. body and mind condition the body designed to achieve complete • Santosha: Contentment respiratory relaxation • Tapas: Austerity • Svadhyaya: Study of • 5 Pratyahara (“Withdrawal”): sacred texts • Control of and withdrawal from the • Ishvarapranidhana: senses to still the mind from external Devotion to God objects • 1 Yama (“Restraint”): • Ahimsa: Injury Statue of • Satya: Falsehood Patanjali • 6 Dharana (“Holding On”): • Brahmacharya: Avarice • Ability to confine awareness and A Sculpture in Indira Gandhi International concentrate on a single object Airport Depicting the 12 Asanas of Surya • Asteya: Theft Namaskara (“Sun Salutation”) • Aparigraha: Lust 8 • Samadhi (“Self -Collectedness”): • 7 Dhyana (“Concentrated Meditation”): External Aids • Oneness with the object of • Undisturbed train of thought on the meditation object of meditation Internal Aids Note: 1. Any school of thought which accepts the authority of the Vedas, the superiority of the Brahmans, and a society composed of four traditional classes. Source: Encyclopedia Britannica Online; www.wikipedia.org; Wikimedia Commons. 27 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 28. Morgan Stanley Smith Barney BACKGROUND Investment Strategy The Seven Sacred Rivers of India 1 Ganga (Ganges) 2 Yamuna 3 Sarasvati 4 1 2 The Hindu Deity Confluence of Two Rivers Marking Taj Mahal on the Sarasvati the Beginning of Ganges Proper Banks of the Yamuna 5 The most sacred river in India, the Along with the Ganga and the According to tradition, this ancient Ganga flows south and east and is Sarasvati, one of the most sacred river now flows underground and 6 fed by various Himalayan Glaciers rivers of India; flows south and joins the Ganga and Yamuna at Region: east; fed by the Yamunotri Glacier Prayag in Allahabad Northern India Region: Region: 7 Length: Northern India Northern India 2,525 km (1,568 miles) Length: Length: 1,376 km (855 miles) Unknown• The rivers of India play a vital role in supplying its people with potable water, irrigation, electricity, and transportation 4 Indus 5 Narmada 6 7 Kaveri Godavari• India’s seven sacred rivers play a major role in the religious life of Hindu Indians as a source of holy water which can wash away not only earthly filth but also purify one of sins• Of the seven sacred rivers, the The Indus Between Deep Gorges in The Marble Rocks The Havelock Bridge Hogenakkal Falls Ganga, the Yamuna, and the Himachal Pradesh, India Along The Narmada on the Godavari of the Kaveri mysterious Sarasvati are the most The Indus originates in Tibet The Narmada flows west and The Godavari flows east and The Kaveri flows east and south important, with their confluence in and flows northwest through forms the traditional boundary south across the Deccan Plateau and bounds the island of Prayag (Allahabad) serving as the India before turning south into between North and South India and is the second longest river Srirangam, a major Hindu site of the largest religious festival Pakistan Region: within India pilgrimage site in the world, the Maha Kumbh Mela Region: Central India Region: Region: (See Page 149) Northern India Length: South India South India Length: 1,312 km (815 miles) Length: Length: 3,200 km (1,988 miles) 1,465 km (910 miles) 765 km (475 miles) Source: www.wikipedia.org; www.hinduism.iskcon.org; Wikimedia Commons. 28 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 29. Morgan Stanley Smith Barney BACKGROUND Investment Strategy The Seven Sacred Cities of India 1 Varanasi 2 Haridwar 3 Mathura Haridwar Mathura Ayodhya Ghats Along the The Mansa Devi Temple The Naam Yog Sadhna Varanasi Ujjain Ganges River at Varanasi Above Haridwar Temple at Mathura Dvaraka Well-established by the Second Situated along the Ganges River at Situated along the sacred Yamuna millennium BC, Varanasi is one of the boundary of the Indo-Gangetic River, Mathura is the traditional the oldest continuously inhabited Plain and the Himalayan foothills; a birthplace of the Hindu deity Lord cities in the world site of the Kumbh Mela festival Krishna Region: (See Page 149) Region: Northern India Region: Northern India State: Northern India State: Kanchipuram Uttar Pradesh State: Uttar Pradesh Uttarakhand• The seven sacred cities of India 4 Ayodhya 5 Ujjain 6 Dwaraka 7 Kanchipuram represent important pilgrimage sites for India’s Hindu population• The sanctity of these seven cities is derived from a diverse array of sources, from being the birthplace The Mahakala of a Hindu deity, to being the Temple landing spot of amrita (“nectar of View of Ayodhya at Ujjain Dwarakadheesh Temple Kanchi Kailasanathar Across the Saryu River at Dwaraka Temple at Kanchipuram immortality”) dropped from the sky, According to tradition, Ayodhya Site of one of the most well- According to tradition, Dwaraka One of the oldest cities in to being the home of a wealth of is the birthplace of the Hindu known Hindu temples, the was founded by Lord Krishna Southern India, Kanchipuram is temples deity Lord Rama Mahakala temple; a site of the after leaving Mathura; one of also known as the “City of a• Varanasi is considered to be the Region: Kumbh Mela festival the four Dham sites Thousand Temples” holiest of India’s seven sacred Northern India (See Page 149) (See Page 30) Region: cities State: Region: Region: Southern India Uttar Pradesh Central India West-Central India State: State: State: Tamil Nadu Madhya Pradesh Gujarat Source: www.wikipedia.org; Wikimedia Commons. 29 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 30. Morgan Stanley Smith Barney BACKGROUND Investment Strategy A Sacred Land: Sacred Sites Across India Char Dham (“Four Abodes/Seats”)• The most important pilgrimage for Hindus to 1 Badrinath: According to one 4 Puri: Lord Krishna is tradition, Lord Vishnu worshipped as the 6 undertake is the Char performed austerity in Jagannatha avatar at the 1 Dham (“Four Bardinath by meditating in Abodes/Seats”), a Jagannatha Temple padmasana (“lotus position”) collection of four sites Jagannatha Temple 9 at Puri which correspond with the 5 Badrinath Temple 7 four points of a compass 2• As the birthplace of four world religions and with a 4 long history of interaction with other religions, India Dwarakadheesh Temple possesses a diverse array at Dwaraka 3 Rameshwaram: According of sacred sites from a 2 Dwaraka: According to to tradition, Rameshwaram 8 number of religions tradition, Dwaraka was founded is the site where the Hindu by Lord Krishna after leaving Main Gopuram (“Tower”) of deity Lord Rama built a Mathura Rameshwaram Temple bridge to Sri Lanka 3 5 Bodh Gaya 6 Harimandir 7 Shikharji 8 San Thome Basilica 9 Dargah Sharif Mahabodhi Temple Harimandir Gurdwara, Jain Temples atop at Bodh Gaya The “Golden Temple” Parasnath Hills San Thome The Dargah Sharif Considered the most sacred Considered the most sacred Considered the most sacred Basilica at Chennai at Ajmer pilgrimage site for Buddhists, Bodh pilgrimage site for Sikhs, pilgrimage site for Jains, Shikharji According to tradition, San Thome The Dargah Sharif is a Sufi Gaya, according to tradition, is the Harimandir is also known as the consists of a series of hills, known Basilica sits atop the original resting Muslim shrine of the 12th site where Gautama Buddha “Golden Temple” for the gold foil as the Parasnath Hills, where 20 out place of Thomas the Apostle (Saint century AD Sufi Saint achieved enlightenment covering its upper floors of 24 tirthankaras (“prophets”) Thomas), the apostle credited with Moinuddin Chishti Region: Region: attained nirvana introducing Christianity to India Region: Eastern India Northwestern India Region: Region: Northwestern India State: State: Eastern India Eastern India State: Bihar Punjab State: State: Rajasthan Jharkhand Bihar Source: www.wikipedia.org; Wikimedia Commons. 30 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 31. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India: A Land of Festivals and Celebrations Select Indigenous Indian Festivals and Celebrations Indian Weddings – Overview Select Significant Indian Festivals Celebrating A Marriage of Families India is a land of festivals, including the largest festival in the history of • Diwali: Known as the "Festival of Indian weddings are lavish affairs filled with the world, the Kumbh Mela (see page 149). Each day of the year is Lights," Diwali is considered the numerous rituals and traditions taking place symbolic, marked with a festive occasion to celebrate the onset of a most popular festival of South over the course of several days. The wedding cycle of seasons, the fertility of the land, the harvest of crops, the Asia and symbolizes the victory ceremony represents the coming together of birthday of a leader, a religious event, or the beginning of a new year. of good over evil; lamps are lit as two families, the same family members who The liveliness of celebration consists in the gaiety of life, vibrant bright a sign of celebration and hope for may have been responsible for helping to colors, music, dance, processions, prayers, vestments, jewelry in gold, mankind; celebrations focus on A Rangoli, A Decorative silver, and diamonds, festive meals, and lights and lamps, particularly Design Made from Colored arrange the couple’s first meeting. Nearly 90 Rice, Flour, and Sand a sense of community irrespective of traditional dīpa, or “earthen lamps;” percent of marriages in India are arranged; celebrated by Hindus, Jains, and Sikhs, and typically occurs such weddings should not be confused with class or creed. Festivals are common in many parts of the country, and differ in in October or November, lasting five days forced marriages, as single Indians often seek out the advice, guidance, and mediation of a the way they are celebrated; they may be named differently in different places. • Holi: Known as the “Festival of Colors,” third party in respect to finding a partner. Holi is an annual and popular Hindu The Indian calendar is marked with numerous festive events, large and small spring festival; bonfires are lit to• Indian wedding traditions include: symbolize the moral of the Legend of in nature; many of them are surrounded Immersion Procession During – Baraat: The groom’s wedding procession; Prahalad and Holik, that good always by legends and have undergone the Ganesh Chaturthi Festival accompanied by family members, the groom wins over evil; festivities include modification over time. travels to the ceremony on a white mare throwing colored powders and water on Colored Powders on – Kanyadaan: A ritual whereby the bride’s • Select regional festivals include: friends as well as strangers; occurs in the Sale for Holi parents hand over their daughter to the later part of February or early March, lasting two days – Onam: An annual harvest festival, celebrated mainly in the Indian groom who then makes three promises: state of Kerala; the foremost festival among the cultural repertoire (i) dharma, to be just; (ii) artha, to earn of Malayali-speakers; traditional festivities include a snake boat • Vaisakhi: The Sikh New Year festival which also sufficiently to support his family; and race, Vallamkali, and the crafting of intricately designed mats made commemorates the birth of Sikhism as a collective faith; a (iii) kama, to love his wife from flowers; occurs during the month of Chingam (August- popular day for Sikhs to be baptized into the Khalsa – Mangalsutra (“An Auspicious Thread”): September) and lasts for ten days brotherhood; occurs either April 13th or 14th Typically a yellow thread with black beads and a gold or diamond pendant, the • Wesak: A Buddhist festival celebrating the birthday and Mangalsutra is tied around the bride’s neck enlightenment of Buddha; traditions include “Bathing the by the groom; the most sacred token of the Buddha,” a ceremony in which water is poured over the couple’s union offered shoulders of the Buddha to serve as a reminder to purify the during the ceremony, mind from greed, hatred, and ignorance; occurs on the full Kerala Snake Boats Onam Pookalam it is, traditionally, to moon in May be worn at all times – Pongal: A celebration of the prosperity associated with the harvest; celebrated by the Indian state of Tamil Nadu as well as Tamils worldwide, including those in Sri Lanka, Malaysia, and • Mahavir Jayanta: A Jain festival celebrating the birth of A Hindu Wedding Singapore; traditional activities include the boiling over of milk in Mahavira, the prophet responsible for Jainism’s present-daySource: www.bbc.co.uk; “First Comes Marriage, Then Comes a clay pot and the embellishment of floors with decorative patterns form; traditions include a ceremonial bath of statues of Love,” ABC News, January 20, 2009; www.wikipedia.org; drawn using rice flour; occurs during the month of Thai (January- Mahavira as well as acts of charity; occurs in either March Wikimedia Commons. February) and lasts for a day or April Source: www.bbc.co.uk; www.wikipedia.org; Wikimedia Commons. 31 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 32. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Indian LiteratureSelect Personages Evolution of Indian LiteratureKalidasa (5th Century AD) • Vedic Texts : The earliest known literature on the India subcontinent, dating from the Vedic Culture (1200 BC – 600 BC), consisting of Sanskrit Vedic texts, known as the Vedas, which are canonical texts (See Page 33).Kalidasa was a Sanskrit poet and dramatist ofthe classical era and his play, Abhijanam • Epic Literature: As the Vedic Culture came to an end, Sanskrit literature shifted towards a more secular stance in the formShakuntalam, is considered one of the bestIndian literary efforts of any epoch. Other of epic poetry, the two major works being the Mahabharata and the Ramayana (See Page 33).notable works include his play Vikramorvashiand his lyrical poem Meghaduta. • Prakrit Literature: With the founding of Buddhism and Jainism in the mid-First millennium BC, new derivations of Sanskrit were developed, known generally as Prakrit, to distinguish the new religious texts from the Sanskrit-based texts ascribed toKabir (1440–1518) the Brahmin religion. Buddhist texts were written in Pāli, while Jain texts were written in Ardhamāgadhi. Notable BuddhistKabir was a weaver, mystic, and Hindi poet texts include:whose work expressed a universal view ofspirituality and had a significant influence on – Jataka Tales: Stories about the previous life of Buddha – Dhammapada: A collection of sayings of BuddhaSikhism. • Classical Sanskrit Literature: By the 3rd century AD, a new form of Sanskrit literature, known as Classical Sanskrit hadMunshi Premchand (1880–1936) evolved from earlier epic poetry. The style of Classical Sanskrit, also known as Kāvya, was characterized by a concertedMunshi Premchand, whose effort to compose literature pleasing to the mind and the ear. Notable works include:works include Ghaban(“Embezzlement”) (1928), and – Gita Govinda (a lyrical poem) – Abhijanam Shakuntalam (a play) – Meghaduta (a lyrical poem)Godan (“The Gift of a Cow”)(1936), is considered one of the • Hindi Literature: Hindi literature, encompassing various Central Zone Indo-Aryan languages of Northern India, emerged atforemost Indian novelists of theearly 20th century. the beginning of the Second millennium AD. Initially characterized by religious and philosophical poetry such as Kabir’s Bijak (“Seedling”), Hindi literature eventually evolved to include works of prose, the first of which was Devaki NandanRabindranath Tagore (1861–1941) Khatri’s Chandrakanta (1888), and in the early 20th century, led to a period of Neo-romanticism, known as Chhayavaad,Rabindranath Tagore was exemplified by the epic poem, Kamayani, by Jaishankar Prasad.awarded the Nobel Prize, thefirst Asian to receive the award, • English Literature: As the power of the English Raj grew in the 19th century, so did its influence on Indian literature within recognition of his work the introduction of the novel (narrative prose), the influence of western thought on Indian narrative verse, and the growth ofGeetanjali, a collection ofpoems. Tagore is also the expository prose inspired by a growing independence movement.author of India’s NationalAnthem. • Other Indo-Aryan and Dravidian (South Indian) Literary Schools: Featuring many distinct regional languages, India’s literary traditions defy categorization; India’s Sanskrit heritage, through its lexicon and imagery, has served as a unitingMahadevi Varma (1907–1987) influence throughout the subcontinent.Mahadevi Varma was a femaleHindi poet and one of the four • Tamil Literature: Tamil literature, with more than 2000 years of tradition, is the oldest of the Dravidian (South Indian)major figures of the Chhayavaad literary schools and is noteworthy for a classical tradition distinct from the Sanskrit model, as illustrated by Tamil(Neo-romantic) movement ofHindi literature. literature’s treatise on grammar known as the Tolkāppiyam and early works including a collection of eight anthologies of lyrics and ten long poems. Source: www.india.gov.in; www.wikipedia.org; Encyclopedia Britannica, www.britannica.com; Wikimedia Commons. 32 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 33. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Sanskrit Texts, Hymns, Scriptures, and Epics The Vedas Epics • The Vedas, the oldest canonical texts of the Hindu religion, were composed by the Vedic Culture (1200 • As the Vedic Culture came to an end, Sanskrit literature BC-600 BC) and represent the earliest known literature on the Indian subcontinent, with the earliest shifted towards a more secular stance in the form of epic Vedic text, the Rigveda, composed sometime in the second half of the Second millennium BC poetry, the two major works being the Mahabharata and • There are four Vedas and each Veda is organized into four sections the Ramayana • The first three sections of each Veda are considered apauruseya (“not authored by humans”), and thus The Mahabharata are called sruti (“what is heard”), as opposed to smrti (“what is remembered”) • Composed of more than 100,000 Sanskrit couplets, the Mahabharata is the world longest poem, more than seven timesThe Four Vedas the size of Homer’s Iliad and Odyssey combined, and more than three times the size of the Judeo-Christian BibleThe Rigveda The Yajurveda The Samaveda The Atharvaveda • The Mahabharata is an epic poem about the struggle between• Most ancient Veda, • Guidance on rituals • Introduces suktas put • Contains early two groups of cousins, the Kauravas and the Pandavas, which containing hymns, or and hymns in respect to musical notes traditions of healing culminates in the Kurukshetra War from which the Pandavas suktas, praising the to sacrifices and methods for gods fulfilling material emerge as the victors aspirations • The original version is believed to have been composed around 400 BC; it underwent various additions over theThe Four Sections of a Veda subsequent centuries through 400 AD Sruti Smrti • A famous section of the Mahabharata is (“What is Heard,”) (“What is Remembered,”) the Bhagavad Gita (“Song of the Lord”), Krishna and Arjun on the Kurukshetra Battlefield which was spoken on the battlefield byThe Samhitas The Brahmanas The Aranyaks The Upanishads Lord Krishna• Most ancient part of • Performance of • Methods to be • Spiritual philosophy • The central story accounts for only one-fifth of the the Vedas, consisting rituals practiced in the Mahabharata, with the balance consisting of myths and legends of hymns, or suktas, wilderness comprised of containing vast amounts of philosophical and devotional incantations, or riks material The RamayanaThe Vedangas • The Ramayana is thought to have been composed not earlier than 300 BC, and is composed of• The Vedangas are six auxiliary disciplines considered essential to understanding the Vedas and include: 24,000 couplets spread over seven books • Nirukta: Etymology • Chandas: Meter • This epic poem describes the journey of Rama, • Vyakarana: Grammar • Jyotisha: Astronomy a Hindu deity associated with chivalry and virtue • Siksha: Phonetics • Kalpa: Ritual • The Ramayana describes the dharma (“duty”) of a variety of characters, portraying characters such Rama’s as the ideal king, the ideal father, the ideal wife, Coronation and the ideal brother Source: www.bbc.co.uk; www.hindupedia.com; www.wikipedia.org; Wikimedia Commons. 33 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 34. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Indian Classical Dance The Eight Classical Dance FormsNatya Shastra 1 Bharata Natyam 2 Kathak 3 Kathakali 4 KuchipudiThe roots of Indian classical dance canbe traced back to the Natya Shastra, anall-encompassing treatise on theater,music, and dance, which is believed tohave been composed sometime between200 BC and 200 AD. The treatise iswritten in Sanskrit and consists of 6,000sutras (“verse stanzas”) organized into The most prominent dance style of The most prominent dance style of A highly-stylized classical dance A classical dance which shares36 chapters. The Natya Shastra’s scope Southern India, Bharata Natyam is Northern India, Kathak is performed on the outside of the elements of Bharata Natyam andranges from the structure of a stage, to characterized by sharp, precise characterized by quick spins and feet, with knees in a turned out Kathak, Kuchipudi isthe analysis of musical scales, to the movements accompanied by intricate footwork; while position, Kathakali is characterized by stamping of theelucidation of the 15 types of dramas and expressive movements of the eyes, traditionally performed as a solo characterized by dramatic leaps feet, dipping and bobbing of thethe eight fundamental rasas (emotional eyebrows, neck, and hands dance, multi-person and swaying movements and is body, and curved linesresponses) of an audience. choreographies are now common traditionally a male-only dance form Origin: Tamil Nadu Origin: Uttar Pradesh Origin: Kerala Origin: Andhra PradeshThree Key Components 5 Manipuri 6 Mohiniattam 7 Odissi 8 Sattriyaof Indian Dance • Nritta: The pure dance movements meant to visually depict the rhythms of the music • Natya: The dramatic element incorporated Developed in a geographically- A classical dance influenced by A classical dance rooted in Sattriya is a classical dance form into dance movements isolated section of India, Manipuri Bharata Natyam and Kathakali, devotional ritual, Odissi is characterized by wavy, horizontal, • Nritya: is a classical dance which is Mohiniattam is characterized by characterized by flowing, lyrical and springing movements; The use of facial expressions and characterized by the graceful, flowing, liquid movements and movements with an emphasis on traditionally a male-only dance hand gestures to render and give fluid, and lyrical movements of semi-circular curves from the the use of the neck, waist, and form practiced exclusively by expression to a song or a poem female dancers contrasted with the waist upwards; traditionally a knee as well as the deflection of bhoktos (“monks”), recently the swift, vigorous leaps of male female-only solo dance form the hips; traditionally a female- dance form has spread to both dancers only dance form male and female laypersons Origin: Manipur Origin: Kerala Origin: Orissa Origin: Assam Source: www.cicd.org.uk; www.wikipedia.org; Wikimedia Commons. 34 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 35. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Classical Indian Music and Traditional Musical InstrumentsClassical Indian Music Carnatic Music Hindustani Music• Classical Indian music is believed to have roots in the Vedic chants of the • Carnatic music is a school of Classical Indian music • Hindustani music is a school of Classical Indian music Samaveda, one of the four canonical associated with Southern India associated with Northern India texts from the Vedic Culture • Carnatic music has an emphasis on vocal music as • Hindustani music, like Carnatic music, has an• Classical Indian music is based on a 12- most compositions are written to be sung and even emphasis on vocal music note scale which consists of seven when played on instruments, they are meant to be basic notes and five interspersed half- • Hindustani music exhibits Persian and Mughal performed in a singing style (known as gāyaki) influences incorporated during the rule of the Delhi notes; unlike Western music, the base frequency of the scale is not fixed Sultanate and the Mughal Empire• Around the 12th century, Classical Indian music diverged into two distinct Traditional Musical Instruments Used Traditional Musical Instruments Used schools, Carnatic and Hindustani in Carnatic Music: in Hindustani Music:• All Classical Indian music rests on the concepts of sruti, relative musical pitch; Tambura Mridangam Sitar Sarangi swara, the musical sound of a single • The Sarangi is a note; rāga, the modes or melodic bowed, short- formulæ; and tāḷa, the rhythmic cycles necked string of a composition instrument of Indian origin; of all Indian instruments, • The Mridangam is a percussion the Sarangi has instrument of ancient Indian origin been said to mostOther Traditional Indian often depicted as the instrument of resemble the soundMusical Instruments choice for several Hindu deities of the human voice Morsing, Saraswati Veena A Wind Percussion Instrument Bansuri • The Tambura, also • The Sitar is a plucked known as Tanpura, is string instrument with an Indian version of a • The Saraswati Veena is a plucked, a long, hollow, and Kanjira, long-necked, unfretted fretted string instrument of ancient fretted neck as well as • The Bansari, a transverse flute ofA Frame Drum of the lute Indian origin two separate bridges ancient Indian origin, is made from a Tambourine Family for drone and single hollow shaft of bamboo with sympathetic strings six or seven finger holes Source: www.wikipedia.org; Wikimedia Commons. 35 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 36. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Modern and Contemporary Art in IndiaInternational Profile Overview• Modern and Contemporary Indian art has achieved a heightened profile on • Modern art in India was directly preceded by the Bengali School of Art which was the international art scene since the characterized by ideas of Indian nationalism and was stylistically influenced by Mughal art. beginning of the new Millennium One of the leading figures of the Bengali School of Art was Abanindranath Tagore (1871- “Bharat Mata”• It has been estimated that the total 1951), a nephew of the Nobel Laureate poet, Rabindranath Tagore. One of Abanindranath (“Mother India”) (1905) transactional market value of Modern Abanindranath Tagore Tagore’s most well-known works was “Bharat Mata” (“Mother India”) which depicted a and Contemporary Indian art has grown from approximately $3 million young woman with four arms (similar to the portrayal of Hindu deities) holding objects of in 2000 to approximately $300 million India’s national aspirations. in 2010 • During the 1930s and 1940s, as number of artists were influenced by communist groups• Such growth symbolizes both the active in the cultural arena. In 1947, a group of these artists who identified with Marxism increased international recognition for Modern and would call themselves the “Progressive Artists’ Group,” also known as the “Bombay Contemporary Progressives.” Members of the Bombay Progressives include: Indian art as well as the increased – Francis Newton (F.N.) Souza – Maqbool Fida (M.F.) Husain domestic thirst for – Syed Haider (S.H.) Raza – Sadanand Bakre “Balzac Etcetera” (1971) “Untitled” (1958) Indian art, as F.N. Souza Akbar Padamsee represented by collectors such as • The Bombay Progressives pivoted away from the nationalist, Mughal-inspired art of the Kiran Nadar, an art collector who “Tree” Bengali School and embraced international modern art practices, including: (i) opened the Kiran S.H. Raza Expressionism; (ii) Surrealism; (iii) Cubism; and (iv) Primitivism. Nadar Museum of Art in 2011 • The Progressive Artists’ Group disbanded shortly after its creation; many of the foundingIndia Art Fair artists achieved international recognition for their work in diverse styles.• The Indian Art Fair is an Indian • While modern artists such as F.N. Souza continued to embrace international modern art Modern and Contemporary Art Fair practices (expressionism in Souza’s case), many Indian artists have searched for a way to held in New Delhi distill a “national” art through exploration of rural handicraft traditions, textile design, and “Cobbler” (2003) Ranbir Kaleka• The third edition of the fair was held metalworking. in January 2011 and exhibited the work of 500 artists for 128,000 • Contemporary Indian art, considered to have emerged in the mid-1980s, symbolized a wider visitors, roughly equivalent to the acceptance of the hybrid styles adopted by the Bombay Progressives. Contemporary artists attendance of the Frieze and Art expanded their universe of mediums to include photo, hyperrealism, installation art, and new “My Uncle Takes Basel Miami Beach art festivals media creations. Notable contemporary Indian artists include: Spare Parts” combined (1996)Source: “Full Speed Ahead,” The Financial Times, Navjot January 30, 2011; “India’s Consumer Class and Diaspora Click Till They Drop,” The – Subodh Gupta – Sudarshan Shetty Financial Times, December 15, 2011; www.wikipedia.org – Bharti Kher – Surendran Nair “Man Seated” (2004) Source: Delhi Art Gallery (Images); www.saffronart.com; www.wikipedia.org. Jogen Chowdhury Please refer to important information, disclosures, and qualifications at the end of this material. 36
  • 37. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Spices in India Eight Common Spices Used in Indian Cuisine 1 Asafetida 2 Cardamom 3 Chili Powder 4 Coriander• India has a long tradition of harvesting, utilizing, and trading a wide array of spices• According to the UN’s Food and Agriculture Organization (FAO), India is by far the largest producer Asafetida, also known as Hing, is Cardamom, also known as Introduced to India in the 16th Coriander, also known as of spices in the world, in 2010 known for its strong, garlic-like Elaichi, comes in two common century, ground chili peppers, Dhania, is characterized by a producing over one million tonnes aroma and is widely used by varieties, green and black, with of spices, more than eight times also known as Lal Mirch, are subtle spiciness and a citrusy, devout Jains and others who do the fragrant seeds within green known for their characteristic often described as lemony, the output of the next largest not eat onions or garlic cardamom pods known for their pungent heat and bite, and have flavor, valued for its aroma as producer, Bangladesh intense aroma and citrusy, spicy- Producing Regions: become a staple flavor in much as its taste• Whole spices are often fried briefly Jammu and Kashmir; Punjab sweet flavor, while those in black Indian cuisine cardamom pods are characterized Producing Regions: in oil or ghee as part of a culinary Producing Regions: Rajasthan; Uttaranchal; Uttar technique called tempering in order by a smokier flavor Andhra Pradesh; Gujarat; Pradesh to liberate essential oils, after which Producing Regions: Karnataka; Maharashtra; Orissa; the whole combination, also known Green: Karnataka; Kerala; Rajasthan; Tamil Nadu; Uttar as a tempering, is poured onto Tamil Nadu Pradesh; West Bengal a dish Black: Sikkim; West Bengal Masala 5 Cumin 6 Mustard Seed 7 Peppercorns (Black) 8 Turmeric• A masala is a term used in South Asia to describe a mixture of spices• A masala can be a combination of dry spices or a paste• Garam Masala: Common in Northern India, Garam Masala is a Cumin, also known as Jeera, is Mustard seed, also known as Black Peppercorns, also known Turmeric, also known as Haldi, blend of ground spices typically characterized by a strong, earthy Sarso, is characterized by a as Kali Mirch, are characterized is known for its intense yellowish including black and white aroma and is used to add a sweet, strong, pungent flavor; whole by an intense aroma, which color, medicinal properties, and peppercorns, nutty, and mild flavor to Indian mustard seed is often used as part includes citrusy, woodsy, and its earthy, pungent, and cloves, cinnamon, dishes, particularly curry; cumin of a tempering, while ground floral notes, and a spicy, biting pleasantly bitter flavor; widely black and white seed oil is used in perfumery and mustard seed is often used to flavor; an essential ingredient in used in vegetable and meat cumin seeds, for flavoring liqueurs flavor fish curries the Indian system of medicine dishes coriander, Producing Regions: Producing Regions: Producing Regions: Producing Regions: and cardamom Ingredients for a Gujarat; Rajasthan; Uttar Pradesh Andhra Pradesh; Bihar; Uttar Karnataka; Kerala; Tamil Nadu Andhra Pradesh; Assam; Bihar; Garam Masala Pradesh Karnataka; Kerala; Maharashtra; Orissa; Tamil Nadu; Uttar Pradesh; West Bengal Source: Spice Board of India; www.wikipedia.org; www.food-india.com; www.mccormick.com; UN Food and Agriculture Organization; Wikimedia Commons. 37 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 38. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Indian Cuisine A Sampling of Regional Indian Cuisines • India’s long history of interactions with Mughlai Cuisine Punjabi Cuisine foreign cultures, combined with the Developed in Northern India in the time of the Mughal Pasanda diversity of India’s geography, climate, Tandoori Chicken Empire, Mughlai cuisine was influenced by Persian and soil types, have resulted in the Punjabi cuisine is known for its cuisine and is known for: its use of spicy and pungent impressive array of flavors for which diverse range of dishes. The seasonings; the incorporation of apricots, raisins, and typical Punjabi masala consists almonds into meat dishes; and a variety of cooking India is known of onion, garlic, and ginger. techniques. Tandoori food (cooked in a • Vegetarianism is common as a part of Tandoor, a cylindrical clay oven) Notable Dishes: Hindu and Jain religious beliefs is a Punjabi specialty. Pasanda: Either lamb, chicken, or king Notable Dishes: prawns are flattened into strips, marinated • While India offers a large variety of Tandoori Chicken: Chicken marinated in yogurt in a mixture of yogurt, chili powder, and cuisines, the majority of a meal for and seasoned with tandoori masala which typically various other spices including garam large portions of the Indian population consists of garam masala garlic, ginger, onion, and masala, cumin, and cardamom, and then cayenne pepper. fried. is relatively similar, with staples including: Gujarati Cuisine Bengali Cuisine – Rice Khandvi Pathi – Assa (Whole-wheat Flour) Gujarati cuisine varies widely Bengali cuisine is – Bajra (Pearl Millet) in flavor and heat, however, known for its subtle many Gujarati dishes are flavors, an emphasis – Dal (Split Lentils) known or simultaneously being on fish prepared in a sweet, salty, and spicy. variety of ways, and a Notable Dishes: wide array ofSelect Indian Ingredients Khandvi: Gram flour, yogurt, and chili powder are confectionaries. slowly cooked into a paste which is then formed Notable Dishes:• Ghee: A type of clarified butter made into rolls and topped with mustard seed, cilantro, Pitha: Pan-fried, steamed, or boiled sweets made from butter churned out of Indian and grated coconut. of rice flour, milk, and either molasses or jaggery. yogurt by boiling and constantly stirring Goan Cuisine South Indian Cuisine until all the water is evaporated Goan cuisine reflects the intermingling of Portuguese and South Indian cuisine distinguishes itself through the A Dosa (Fermented Indian cooking influences. Goan dishes often incorporate generous use of coconuts, coconut milk, and tamarind, Crepe) Served with Ghee the Portuguese method of marinating meats in vinegar as combined with spices such as mustard seeds, well as a much wider use of pork. This influence extends coriander seeds, and curry leaves. Spices in South• Jaggery: A traditional beyond Goan cuisine as the Portuguese introduced chilli Indian dishes are typically quickly fried before being unrefined whole cane peppers to the Indian subcontinent. ground with onions and coconut whereas in Northern sugar made from cane Notable Dishes: dishes spices are often powdered and then fried with Fish Molee onions, tomatoes, or yogurt. juice and date juice Pork Vindaloo Pork Vindaloo: Pork is marinated overnight in a mixture From Kerala of vinegar and spices including garlic, onions, and chillis, Notable Dishes: A block of and then simmered. Fish Molee: Fish, typically black pomfret, is prepared Indian Jaggery in a coconut-based sauce Source: www.wikipedia.org; Wikimedia Commons 38 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 39. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Media and Entertainment in India An Overview • The Media and Entertainment (M&E) industry in India primarily consists of the Television space, accounting for 45.5% of India Media Industry Breakdown the $14.3 billion aggregate industry revenues in 2010 2010 Percentage of Total Industry Size • As of mid-2012, the Indian M&E industry was experiencing a shift towards digital content from a number of different Out of Radio Gaming Digital Music directions including: a regulatory-driven push towards digital cable; increasing mobile and broadband penetration (the Home 1.5% 1.5% Advertising 1.4% 2.6% 1.5% wireless subscriber base had grown from approximately 562 million to 894 million from December 2009 through December 2011); the increasing affordability of 3G wireless service (in mid-2012, four of the largest telecom service providers reduced Animation 3G tariffs by up to 80 percent); and the increasing acceptance of digital music and VFX Television 3.7% 45.5% • As of mid-2012, the Indian M&E industry was characterized by a significant level of fragmentation in the two largest segments of Television and Print, however, according to the FICCI-KPMG Indian Media and Entertainment Industry Report Film 12.7% 2011, both these segments were positioned for consolidation over the medium-to-long term • As of mid-2012, the Indian M&E industry was also experiencing increasing regionalization as rising purchasing power in Print 29.6% tier 2 and tier 3 cities spurred media consumption and, in turn, the growth of regional playersSource: “Hitting the High Notes: Indian Media and Entertainment Industry Report 2011,” FICCI- KPMG, 2011. Television Print Film • The Indian government has set a • While the Print medium has • The film industry in India, C.I.D. December 2014 target for the experienced a decline in the popularly known as Bollywood, India’s Longest Running TV Series complete digitization of cable TV developed world, the Print produces over 1000 films Introduced in 1998, C.I.D., • As of March 31, 2011, TV segment has experienced strong annually; multiplex screen a weekly detective series on growth in India, supported by penetration remains low as of households in India numbered SONY TV, was still on the rising literacy levels and low 2011, with approximately 1,000 air as of mid-2012. C.I.D. 143 million; Cable TV subscribers numbered 92 million; levels of print media penetration multiplex screens across the was also entered into the C.I.D. Logo and there were 649 registered TV • As of mid-2012, India was one of country (along with Guinness Book of World Records for the episode aired on channels the largest newspaper markets approximately 10,000 single- November 7, 2004, “The with more than 107 million screen theaters) Inheritance,” a 111 minute episode copies circulated daily, • As of 2012, multiplex screen shot in a single take. accounting for approximately growth was expected to be theSource: www.wikipedia.org; Wikimedia Commons. 20% of all dailies in the world main driver of Bollywood growth Source: Annual Report 2010-11, Telecom Regulatory Authority of India, December 2011; “The Indian Telecom Service Performance Indicators: October – December 2011,” Telecom Regulatory Authority of India, April 13, 2012; “Hitting the High Notes: Indian Media and Entertainment Industry Report 2011,” FICCI-KPMG, 2011; World Association of Newspapers and News Publishers; “Vodafone Slashes 3G Tariffs Up to 80%,” The Times of India, June 19, 2012; “Ray of Hope: Single-screen Theaters Find Value as Malls, Apartments,” The Economic Times, April 21, 2012; www.wikpedia.org. 39 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 40. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Bollywood India’s Film Industry Select Bollywood Movies Brief History of Bollywood – India’s Film Industry“Mother India,” 1957 • Bollywood, the name given to the Mumbai-based Hindi-language film industry in India, is the largest center of filmmakingMehboob Khan’s Mother in the world, producing approximately 1000 films annually (during 2011, the US produced 601 films)India is considered to have • India’s film industry began in the early 1910s; the period from the late 1940s through the 1960s came to be known asset the tone for Indian film Bollywood’s “Golden Age,” with the release of critically-acclaimed films exploring social themes in post-independencefor the proceeding 50 years. IndiaThe movie is referred to asIndia’s “Gone With the • Bollywood films are known for their high concepts, ethnic flavor, rich emotionalism, vivid colors, and sensuous musicWind,” for its highlight of • The song-and-dance number is a key component for most Bollywood films, as the pre-release of a movie soundtracksocial change. represents as strong as a draw for Indian moviegoers as the pre-release of a trailer for American moviegoers“Bombay,” 1995 Source: “’Bollywood Mania’ Rising in the United States,” by Anita N. Wadhwani, The Washington File, August 9, 2006; www.boxofficemojo.com; www.wikpedia.org.Mani Ratnam’s Bombay, alove story between a Hindu Select Bollywood Producers, Directors, Actors, Actresses, and Playback Singersman and a Muslim woman,was considered so potent as Guru Dutt, Producer/Director/Actor Kareena Kapoor, Producer/Actressa commentary on religious (1925-1964) (1980-)tensions on India that the Guru Dutt produced, directed and starred Kareena Kapoor, commonly known asgovernment took two in the “Golden Age” classics, Pyaasa “Bebo,” is considered one of the mostmonths to review the film (“Thirsty”) (1957), and Kaagaz Ke popular Bollywood actresses. Kapoor’sfor censorship. Phool (“Paper Flowers”) (1959). critically-acclaimed work includes Refugee (2000) and Omkara (2006).“3 Idiots,” 2009As of mid-2012, RajkumarHirani’s comedy, Three Asha Bhosle, Playback Singer Shah Rukh Khan, Producer/ActorIdiots, was the highest (1933-) (1965-)grossing Bollywood film of Asha Bhosle is a Bollywood playback Considered one of the biggest movie starsall-time, with approximately singer recognized by the Guinness Book in the world, Shah Rukh Khan is known$73 million in ticket sales. of World Records as having the most as the “King of Bollywood,” or “KingThe film’s international studio recordings as an artist. As a Khan.” Khan’s critically-acclaimed worksuccess in other Asian playback singer, Bhosle would pre-record includes Dilwale Dulhania Le Jayengemarkets was notable as well. songs for Bollywood films, which would (“The Brave Hearted Will Take the then be lip-synched by Bollywood Bride”) (1995) and My Name is KhanSource: “Mother India (1957),” by Dave Kehr, The New York actresses. (2010). Times, August 23, 2002; www.boxofficeindia.com; www.wikipedia.org; Wikimedia Commons. Source: www.wikpedia.org; Wikimedia Commons. 40 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 41. Morgan Stanley Smith Barney BACKGROUNDInvestment Strategy Asian Elephants International Union for Conservation of Nature Elephas Maximus Asian Elephants are considered endangered species. Asian Elephants are native to south and south-east Asia An Overview of the Asian Elephant in India • The Asian Elephant (Elephas maximus) species is recognized to be comprised of three sub-species: (i) the Indian Elephant (E.m. indicus); (ii) the Sri Lankan Elephant (E.m. maximus); and (iii) the Sumatran Elephant (E.m. sumatranus). • Asian Elephants and African Elephants are both part of the Elephantidae family; they are two distinct genera, Elephas (Asian) and Loxodonta (African) with Asian Elephants typically being slightly smaller than African Elephants along with other Depiction of an Elephant at the differences such as the shape of the ear, back, belly, and head. Bhimbetka Rock Shelter • The Asian Elephant is an endangered species whose population size reduction has been inferred to be at least 50% in the last three generations (estimated to be 60-75 years). The current global population is estimated to be between 41,410 and 52,345, with India hosting the largest number, approximately 26,390 to 30,770 elephants. • The earliest mention of domesticated elephants on the Indian subcontinent is believed to be at the Bhimbetka Rock Shelters, around 6000 B.C. • The elephant was identified in the Arthashastra, a Indian treatise on statecraft, economic policy, and military strategy from the time of the Mauryan empire, as a critical resource from the wild whose population merited protection and conservation so that wild elephants could be periodically captured and domesticated for use in labor and battle, even being used to mobilize resources as recently as World War II. Wild Elephants in Kerala • In modern times, elephants have come to be primarily associated with state pomp, status, and tourism. Source: International Union for Conservation of Nature, http://www.iucnredlist.org; “The Domesticated Asian Elephant in India”, by S.S. Bist, J.V. Cheeran, S. Choudhury, P. Barua, and M.K. Misra, Food and Agriculture Organization of the United Nations, 2002; www.wikipedia.org. The Asian Elephant In Indian Religion • Buddhism: – According to Buddhist tradition, ten months prior to giving birth to Buddha, Queen Maha Maya had a dream where after being carried away by four devas (spirits) to Lake Anotatta in the Himalayas, a white elephant appeared holding a white lotus flower in its trunk. The elephant circled her three times and then entered her womb through her right side. The elephant, a symbol of greatness in Queen Maha Maya’s kingdom (modern-day Nepal), was taken as an omen that the child A Temple Elephant was to become a “very great being.” Being Bathed • Hinduism:Source: The Bradshaw Foundation; Wikimedia Commons. – One of the most popular Hindu deities is Lord Ganesh, a deity who is depicted with an elephant’s head on a human body. According to Hindu tradition, Ganesh is the son of Lord Shiva and the Goddess Parvati and is known as the Remover of Obstacles, often prayed to prior to the start of a new venture such as the opening of a business or a significant purchase. Source: www.buddhanet.net; www.bbc.co.uk; www.wikipedia.org. 41 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 42. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India’s Megacities: Delhi, Mumbai, and Kolkata Megacities: Defined by the United Nations as Urban Agglomerations of 10 Million or More Delhi Mumbai KolkataHistorical Significance Historical Significance Historical Significance• Delhi is thought to have been • The earliest known inhabitants of the • Kolkata, founded by the British East continuously inhabited since the 6th seven small islands which comprised India Company in 1690 as a trading century; however, according to the epic historical Mumbai are thought to be the post, was designated the capital of poem, Mahabharata, Delhi also may be Koli people. British India beginning in 1772, and the site of the legendary capital of the • From the time of the Mauryan Empire would remain so until the transfer of Pandavas, called Indraprastha. in the late First millennium BC the government to Delhi in 1911.• Delhi has served as a key city or capital through the mid-17th century, the • Kolkata’s trade-based economy of kingdoms, empires, and sultanates islands did not play a particularly flourished as the British consolidated since its founding, and consequently • Union Territory: important geopolitical role as the • State: control over the subcontinent during the • State: has been sacked, destroyed, and rebuilt NCT of Delhi governorship of the islands passed from Maharashtra 19th century; the onset of the 20th West Bengal multiple times. • Pop. (UN Est. 2011): ruler to ruler. • Pop. (UN Est. 2011): century brought challenges related to an • Pop. (UN Est. 2011): 22.7 million 19.7 million Indian Independence movement and 14.4 million• Delhi attained renewed and sustained • After receiving control of the islands in the prominence after being utilized as the capital of the Delhi form of a dowry to King Charles II, the British drove Mumbai’s Hindu-Muslim tensions. Sultanates, the Mughal Empire, and finally, the British Raj when the transition into a major financial and trading hub through initiatives • Kolkata came to represent economic stagnation in India through the capital of British India was moved from Kolkata to Delhi in 1911. including: (i) undertaking a series of civil engineering projects that second half of the 20th century as prolonged Communist rule and the by the mid-19th century had created strain of refugees from the partition of India (1947) and the a single island from the seven islets Bangladesh Liberation War (1971) placed heavy burdens on anRelevance Today and a deep natural harbor; already under-invested infrastructure.• Delhi is the most populous urban agglomeration in India and has (ii) designating the city as the capital grown to include the once distinct Central Government capital of the Bombay Presidency (Province); district of New Delhi as well as cities and towns in the neighboring and (iii) creating the Bombay Mumbai Skyline states of Haryana and Uttar Pradesh. Presidency Bank. Relevance Today• Delhi is primarily located within the National Capital Territory • Kolkata is the third most populous (NCT) of Delhi and is situated on the Gangetic plains alongside the Relevance Today urban agglomeration in India and is Kolkata Business District Yamuna River, with a climate characterized by extreme dryness, • Mumbai is the second most populous urban agglomeration in India the capital of the state of West Bengal. long and hot summers, and short and mild winters. and is the capital of the state of Maharashtra. • Kolkata is considered the financial and commercial hub of East and• Delhi is the largest commercial center and the largest center of • Mumbai is considered the financial and commercial center of India North-East India and key business sectors include Manufacturing, small industries in Northern India. and key business sectors include Banking and Financial Services, Banking and Financial Services, and Information Technology.• Key business sectors include Information Technology, Media, Manufacturing, Media and Entertainment, Telecommunications, and Information Technology. • In 2011, after three decades of Communist rule, Mamata Banerjee Telecommunications, Tourism, and Manufacturing. was elected as Chief Minister of West Bengal representing the• Delhi is served by the Indira Gandhi International Airport as well • Mumbai hosts India’s two major stock exchanges: (i) the Bombay Trinamool Congress Party, which has wielded crucial influence in as the Delhi Metro which transports over 2 million riders each day. Stock Exchange; and (ii) the National Stock Exchange. India’s coalition politics. • Mumbai is served by the Chhatrapati Shivaji International Airport • Kolkata is served by the Netaji Subhash Chandra Bose as well two major ports, the Mumbai Port Trust and the Jawaharlal International Airport as well as by the Kolkata Port Trust, which Nehru Port Trust, which manages India’s only major river port. combined make Mumbai the largest port city in Parliament of India North Block, India by tonnes handled. Central Government Building Jawaharlal Nehru Port Source: www.india.gov.in; Ministry of Shipping; “UN World Urbanization Prospects: 2011 Revision,” United Nations Population Division, April 5, 2012; “Delhi Metro Sets Record with Nearly 22 Lakh Ridership,” The Economic Times, August 2, 2012; www.wikipedia.org; Wikimedia Commons. 42 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 43. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India’s Megacities of the Future Urban Agglomerations Projected by the United Nations to Have a Population 10 Million or More in 2025 Bangalore (Bengaluru) Chennai (Madras) HyderabadHistorical Significance Historical Significance Historical Significance• Bangalore was founded in 1537 with • Chennai was founded as an English • Hyderabad was founded in 1591 by the the construction of a mud-brick fort by trading post in 1639 with the Qutb Shahi Dynasty (Golkonda a vassal of the Vijayanagara Empire. construction of Fort St. George. Sultanate).• The British won control of Bangalore • In 1785, Chennai, at the time known as • Hyderabad served as the capital of the in 1791 and eventually handed over Madras, was designated the capital of Nizam of Hyderabad, a Princely State governorship to the Princely State of the Madras Presidency (province), one which ruled over portions of present- Mysore while still retaining an of three Presidencies in India, which day Andhra Pradesh, Karnataka, administrative and military presence drove Chennai’s development as the Maharashtra, and Gujarat from the until 1947. • State: administrative and commercial capital • State: early 18th century until India’s • State: Karnataka of Southern India as well as an Tamil Nadu independence. Andhra Pradesh • Pop. (UN Est. 2010): important naval base. • Pop. (UN Est. 2010): • Pop. (UN Est. 2010): 8.3 million 8.5 million • Hyderabad developed a unique culture 7.6 million through the patronage of the largest and • Pop. (UN Est. 2025): Relevance Today • Pop. (UN Est. 2025): richest Princely State of India as well as • Pop. (UN Est. 2025): 13.2 million 12.8 million 11.6 million • Chennai, the capital city of Tamil through its location at the coalescence Nadu, is the fourth most populous of Southern and Northern India. Infosys Headquarters urban agglomeration in India and isRelevance Today projected by the United Nations to be Relevance Today• Bangalore, the capital city of Karnataka, is the fifth most populous the fifth most populous in 2025. • Hyderabad, the capital city of Andhra urban agglomeration in India and is projected by the United • Situated on India’s Eastern Coastal Pradesh, is the sixth most populous Nations to be the fourth most populous in 2025. Plains and lying along the thermal urban agglomeration in India and is equator, Chennai experiences a Fort St. George, circa 1754 projected by the United Nations to HITEC City,• Situated on the Mysore Plateau at an average elevation of 900 m Tech Park in Hyderabad (2,953 ft), Bangalore experiences a much milder climate consistent hot and humid climate. be the sixth most populous in 2025. throughout the year relative to other cities in Southern India. • Key business sectors include Information Technology, • Situated on India’s Deccan Plateau along the Musi River, Hyderabad• Key business sectors include Information Technology, Manufacturing (particularly Automobiles), and Healthcare. experiences a hot and humid climate typical of Southern India. Biotechnology, and Manufacturing (particularly Aerospace). • Commonly known as the “Detroit of India,” Chennai is a major • Key business sectors include Information Technology,• Hosting a large number of global technology companies, Bangalore hub of India’s automobile manufacturing industry and hosts a large Pharmaceuticals, Biotechnology, Trade, and Manufacturing. is commonly known as “India’s Silicon Valley,” and in 2012 was number of global automobile manufacturers. • Hyderabad has a long heritage of being one of the centers of the ranked as one of the top ten cities for entrepreneurs by the Startup • Chennai’s annual six-week Madras Music Festival, which global pearl and diamond trade, and is commonly known as the Genome Project. highlights the Carnatic style of Indian classical music, underscores “City of Pearls” due to the large presence of the pearl trading• Bangalore hosts Research and Development centers from various Chennai’s position as a major cultural center in Southern India. industry. global aerospace companies including Boeing, Airbus, Honeywell, • Chennai is served by the Chennai • The government of Hyderabad has actively positioned Hyderabad as and GE, as well as the headquarters International Airport as well as two a Biotech hub and has christened of the Indian Space Research major ports, Ennore Port and Hyderabad as “Genome Valley.” Organization. Chennai Port. • Hyderabad is served by the Rajiv• Bangalore is served by the Gandhi International Airport Bengaluru International Nissan Micra, (opened in 2008). View of Hyderabad Airport (opened in 2008). Bagmane Tech Park Assembled in Chennai From Golkonda Fort Source: www.india.gov.in; Ministry of Shipping; “UN World Urbanization Prospects: 2011 Revision,” United Nations Population Division, April 5, 2012; “Bangalore Among The Top 10 Preferred Entrepreneurial Locations,” The Economic Times, April 12, 2012; “A New Detroit Rises in India’s South,” The Wall Street Journal, July 8, 2010; www.wikipedia.org; Wikimedia Commons. 43 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 44. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Notable Indian Cities Surat (State of Gujarat) Kanpur (State of Uttar Pradesh) • Population (2010)(1): 4.4 million • Population (2010)(1): 2.9 million • According to tradition, Surat was founded by a Brahman • In the 18th century, the village of Kanpur grew to in the early 16th century and was the site of the first prominence as the British deemed the location between British trading post in India, established in 1612. the Ganges River and the Yamuna River to be of • Located on the Arabian Sea, Surat was a key port from strategic importance; today Kanpur is located at the the 16th century until the ascendance of the port in nexus of three National Highways and one State Mumbai in the 18th century. Highway. • Manufacturing industries including textiles and diamond • Kanpur is one of the largest industrial hubs in Northern cutting/polishing form the backbone of Surat’s economy. India with an industrial base composed of textiles, leather goods, fertilizers, and chemicals. • It has been estimated that 80% of the world’s diamonds are cut and polished in Surat. • In 2011, Kanpur was ranked as the tenth most polluted (air quality) city in the world by the World Health • As of 2012, the City Mayor’s Foundation had forecast Organization. Surat to be the 4th fastest growing city in the world through 2020.Pune (State of Maharashtra) Jaipur (State of Rajasthan)• Population (2010)(1): 5.0 million • Population (2010)(1): 3.0 million• Pune rose to prominence in the mid-17th century • In 1727, Maharaja Ram Seo Master II of Amber, when the founder of the Maratha Empire, Shivaji, initiated construction of Jaipur, building a city designated the city as the capital of the newly which some consider the most well designed of its formed Maratha homeland. time, with nine rectangular sectors, gridded streets,• Pune fell under control of the British in 1817 who and wide boulevards. used the city as the “monsoon capital,” of the • Jaipur is known as the “Pink City,” as its buildings Bombay Presidency and built a military are predominantly rose-colored. cantonment now utilized by the Southern • In 1876, the whole city was painted pink to Command of the Indian Army. welcome the Prince of Wales for a visit.• Key business sectors include Information • Key industries include gems, jewelry Technology and Manufacturing (particularly manufacturing, and garments. Automobiles). • Jaipur serves as the capital of the state of Rajasthan.• Pune has been termed the “Oxford of the East,” for its wealth of educational institutions. Source: www.india.gov.in; www.suratmunicipal.gov.in; World Health Organization; www.citymayors.com; “UN World Urbanization Prospects: 2011 Revision,” United Nations Population Division, April 5, 2012; “Surat: Domestic Demand Has Been the City’s Best Friend,” The Financial Times, January 28, 2010; www.wikipedia.org; Wikimedia Commons. 44 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 45. Morgan Stanley Smith Barney BACKGROUNDInvestment Strategy Contemporary Indian Architecture Siruseri Techno Park Pearl Academy of Fashion World One • Built: 2006 • Built: 2008 • Built: Est. 2014 • Architect(s): Carlos Ott, Carlos Ponce de León • Architect(s): Morphogenesis • Architect(s): Pei Cobb Freed & Partners, • Location: Chennai • Location: Jaipur Leslie E. Robertson Associates • Location: Mumbai The Siruseri Techno Park was built to support 20,000 The 215,278 sq. ft. campus is designed to be an workers of TATA Consultancy Services. The Park environmentally responsive passive habitat. The Academy incorporates artificial lakes and streams to mitigate the high incorporates a ‘Jaali,’ a traditional Rajasthan building temperatures of Chennai and includes water treatment and element characterized by perforated stone or a latticed recycling capabilities. In 2011, the park was named “Best screen to create a double skin perimeter to serve as a thermal Office Architecture in Asia Pacific” by International buffer. Property Awards. Bharti Airtel Headquarters The Park Hotel • Built: 2009 • Built: 2010 • Architect(s): Hafeez Contractor • Architect(s): Skidmore, Owings & Merrill LLP • Location: Gurgaon • Location: Hyderabad As of early 2012, when the 1,450 foot, 117 story, 300 unit, World One tower is completed, it would become the tallest residential building The 553,500 sq. ft., futuristic headquarters of Bharti Airtel The flagship, 531,500 sq. ft., 270-room hotel incorporates in the world. The interior design is by Giorgio incorporates the trademark red and white colors of its logo. sustainable design strategies as well as design elements from Armani and the building includes an open-air The design also incorporates traditional courtyard planning. the city’s historic ruling dynasty, the Nizam of Hyderabad. observatory at 1000 feet. In 2011, the hotel was awarded MIPIM’s “Best Hotel and Tourism Resort.” Source: www.perspectiveglobal.com; www.carlosott.com; www.som.com; www.morphogenesis.org; www.hafeezcontractor.com; www.wikipedia.com. 45 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 46. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India’s Airports Airports in IndiaAirports & Airfields • The Airports Authority of India is responsible for management of the country’s airports and civil enclaves as well as India’s Number of 2.8 million nautical square miles of national airspace. As of March 2011, India had 115 airports (excludes single airfields) AirportsRank Country & Airfields and 23 civil enclaves (areas at a military air base allotted for civilian use).1 United States 15,079 • Since 1993, India has applied the Public-Private Partnership model to develop four greenfield international airports:2 Brazil 4,105 – Cochin International Airport3 Mexico 1,7244 Canada 1,453 – Bengaluru International Airport5 Russia 1,218 – Rajiv Gandhi (Hyderabad) International Airport6 Argentina 1,1497 Bolivia 865 – Dr. Babasahed Ambedkar (Nagpur) International8 Colombia 862 • Additionally, two existing international airports were transferred to PPP joint ventures for expansion:9 Paraguay 800 – Indira Gandhi (Delhi) International Airport10 Indonesia 67611 South Africa 567 – Chhatrapati Shivaki (Mumbai) International Airport Source: Airports Authority of India.12 Papua New Guinea 56213 Germany 541 Indira Gandhi (Delhi) International Airport14 China 49715 Venezuela 492 • The Indira Gandhi International Airport (IGI) is one of the busiest airports in the world,16 Chile 476 handling 35.9 million passengers during FY2012, of which 25.1 million were17 France 473 domestic passengers and 10.8 million were international passengers.18 Australia 467 • With the completion of Terminal 3 in March of 2010, the airport’s capacity was19 United Kingdom 462 increased to 60 million passengers per annum.20 Ecuador 431 • The ultimate design capacity for the airport is 100 million passengers22 India 352 per annum. Rendering of Indira GandhiSource: CIA World Factbook (July 2012). Data are as • The concession to operate the airport was awarded in January 2006 to DIAL, International Airport’s Terminal 3 of 2012. a consortium consisting of the GMR Group, the Airports Authority of India, Fraport, and Malaysia Airports Holdings Berhad (MAHB), with an initial term of 30 years which is extendable by an additional 30 years. • In 2011, the airport was recognized by the Airports International Council as the second-best airport in the world within the 25-40 million passengers per annum category and as the sixth-best airport in the world overall. Source: Airports Authority of India; Indira Gandhi International Airport; “Crowning Glory: IGI Second Best in World,” The Times of India, February 15, 2012. 46 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 47. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India – International Hosts The 2010 Commonwealth Games and the 2011 Cricket World Cup 2010 Commonwealth Games 2011 Cricket World CupHistory of the Commonwealth Games 2011 Cricket World Cup Knockout StageYear City Year City Quarter-finals Semi-finals Final1930 Hamilton, Canada 1982 Brisbane1934 London 1986 Edinburgh Dhaka, Bangladesh1938 Sydney 1990 Auckland West Indies1950 Auckland 1994 Victoria Mohali, India1954 Vancouver 1998 Kuala Lumpur Pakistan Opening Ceremony Pakistan1958 Cardiff, Wales 2002 Manchester Ahmedabad, India1962 Perth 2006 Melbourne India Australia1966 Kingston 2010 Delhi Mumbai, India1970 Edinburgh 2014 Glasgow India India1974 Christchurch 2018 Gold Coast Dhaka, Bangladesh1978 Edmonton Sri Lanka New Zealand Colombo, Sri Lanka South Africa Closing Ceremony New Zealand Colombo, Sri Lanka Sri Lanka England 2010 Commonwealth Games – Medal Standings Number of Medals Gold Silver Bronze Total Sri Lanka Australia 74 55 48 177 England 37 59 46 142 From February to April 2011, India co-hosted the 2011 Cricket World Cup with Bangladesh India 38 27 36 101 and Sri Lanka. India was allocated the most matches, hosting 29 of 49 total competitions. Canada 26 17 32 75 Pakistan was originally designated a co-host, but lost its right to co-host in the aftermath of South Africa 12 11 10 33 a 2009 attack on the Sri Lankan national cricket team in Lahore. In October 2010, India hosted the 19th Commonwealth Games in Delhi. The months The semifinal match held in Mohali, India between India and leading up to the games were filled with controversy as reports of sub-par facilities using Pakistan drew widespread attention, as many looked for signs second rate materials accompanied accusations of graft, with the collapse of a 100 meter of ‘cricket diplomacy’ with Indian Prime Minister Manmohan walking bridge and the athletes’ village being deemed “unfit for human habitation” two Singh and Pakistani Prime Minister Yusuf Raza Gilani seated weeks prior to the start of the games. Threats of terrorism resulted in a massive security with each other in the stands. presence of 100,000 security personnel deployed in the city center. Despite these initial With a win over Sri Lanka in the finals, India became the first Stumpy, Official Mascot of setbacks, the games were completed without any major issues. country to win the Cricket World Cup on its home soil. the 2011 Cricket World Cup Source: www.d2010.thecgf.com; “Shocking Conditions Put Delhi Games Under Threat,” The Independent, September 21, Source: “A Sporting Chance,” The Economist, March 30, 2011; “Pakistan Wants China to Host Cricket Matches on Its 2010; “At Least They Started,” The Economist, October 7, 2010. Behalf as Neutral Site,” The Times of India, December 3, 2010; www.wikipedia.org; Wikimedia Commons. 47 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 48. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India’s National Sport – Cricket Brief History of Cricket Cricket in India Sachin Tendulkar – The “Little Master”The earliest known evidence of cricket was a match • The earliest recorded reference to cricket occurred in 1721 • Sachin Tendulkar is the most famous Indian cricketer of allin Guildford, Surrey in the mid 16th century. Similar when British sailors played in what is the modern Indian state of time and is widely considered to be one of the greatestto shooting and fox-hunting, cricket was considered a Gujarat. batsmen ever to play the game.sport for aristocrats and noblemen. • The Calcutta Cricket Club was established in 1792 and is the 2nd • On March 16, 2012, at the age of 38, and 21 years afterThe popularity of cricket grew substantially in the oldest club in the world. hitting his first century, Tendulkar became the first cricketer18th century, becoming the national sport of England. • In 1911, the first All-India team toured England. to register 100 centuries (scoring 100 runs in a Test or in aLarge crowds gathered to watch play in the White One Day International), which is 29 centuries more than theConduit Fields at Islington, London, prompting the • On June 25, 1932, India played in its first international test batsman in second place, Ricky Ponting.creation of the Marylebone Cricket Club, known as match, officially becoming a full member of the ICC. • At five feet five inches tall,Lord’s Old Ground, in 1787, which remains the • India won the Cricket World Cup in 1983 as underdogs and Tendulkar is nicknamedcustodian, along with the International Cricket again in 2011 as favorites. the “Little Master.”Council (ICC), of cricket laws. • Tendulkar has been awardedCounty teams began to form in earnest in the mid- Basic Rules of Cricket India’s 2nd highest civilian19th century and by this time, the game had spread • Cricket is played between two teams of 11 players each. honor, the Padma Vibhushanacross the former British Empire, including India, award, recognizing exceptionalAustralia, New Zealand, South Africa, the United • Matches are divided into periods called ‘innings’ during which and distinguished service toStates, and Canada. The first international test match one team fields and one team bats, with two batters on the field the nation. Sachin Tendulkar Afterwas played in 1877 in Melbourne between England at any one time, on opposite sides of the pitch. Making His 100th Centuryand Australia with Australia winning by 45 runs. • One member from the fielding team is designated a ‘bowler’England’s first loss to Australia, within England, led and ‘bowls’ a ball from one end of the pitch to the wicketto the rivalry becoming known as the “The Ashes” behind the batsman on the other side of the pitch. A Typical Cricket Fieldwhen a satirical obituary for English cricket was • The batsman attempts to prevent the ball from striking the Typically an Oval Field, 150 – 160 Yards in Diameterprinted in The Sporting Times. wicket by striking the ball with a bat.International test cricket, which can last up to five • A batsman is considered ‘dismissed’ if a wicket is hit or if a balldays, can only be played by the ten full members struck by the batsman is caught by a fielder before it touches thesanctioned by the ICC. ground.Limited overs cricket was introduced in England in • Runs are scored when a ball struck by a batsman successfully1963, and the ability to finish a match in one day led hits the ground and the two batsmen cross the pitch and groundto the creation of the first Cricket World Cup in their bats before a fielder can strike a wicket with the ball.1975. • International Test Match: Equipment of Cricket – Four innings are played, over a maximum of five days, where innings are concluded when 10 batsmen have been dismissed. • One Day International Match (ODI): – Only one inning is played and it is subject to limited overs (one over is equal to six bowls), typically with a limit of 50 overs (300 bowls). Ball Bat Wicket Source: The Board of Control for Cricket in India; Marylebone Cricket Club; www.espncricinfo.com; www.wikipedia.org. 48 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 49. Morgan Stanley Smith Barney BACKGROUND Investment Strategy History of Modern Indian Paper Currency• The establishment, by government charter, of semi-governmental Early Issues Presidency Banks, notably the Bank of • Unifaced Series: The first series of notes, issued by the semi-governmental Presidency Bank, the Bank of Bengal in 1806, spurred the wider use of bank notes Bengal, had only one printed side.• The Paper Currency Act of 1861 • Commerce Series: The Commerce Series introduced a vignette of a female figure, representing commerce, sitting marked the transition of currency by a quay. The notes were printed on both sides, with the name of the issuing bank and the denomination printed issuance to the Government in three languages on the obverse side.• The function of currency issuance was assumed by the Reserve Bank of India • Britannia Series: The Britannia Series replaced the commerce motif with that of Britannia. The new series also with its establishment in 1935 included more intricate patterns and multiple colors to counter forgeries.• One rupee notes were introduced as a wartime measure during World War I and World War II British India Issues• During World War II, the Japanese • Victoria Portrait Series: The first set of British India notes, similar to the first notes issues by the Presidency produced high quality forgeries in an Banks, were unifaced. The notes carried two language panels and security features incorporated into the notes effort to destabilize the Indian currency included watermarks, a printed signature, and registration.• The current issue, introduced in 1996, represents the Mahatma Gandhi • Underprint Series: The Underprint Series was introduced in 1867 as a replacement for the widely-forged Victoria Series Portrait Series. The note included four (later increased to eight) language panels. Improved security features included a wavy line watermark, the manufacturer’s code in the watermark, guilloche patterns, and a colored The Indian Counting System underprint.• Based on the Vedic numbering system which groups numbers by • King’s Portrait Series: The King’s Portrait Series, featuring King George V, was introduced in 1923. The King’s two decimal places rather than three Portrait motif was retained when the Reserve Bank of India assumed currency issuance responsibilities in 1935. Later notes incorporated a security thread and featured King George VI with a full frontal portrait.• Widely used in India, Pakistan, Bangladesh, Nepal, and Sri Lanka• Lakh: A unit equal to one hundred Republic of India Issues thousand and written as 1,00,000 • Ashoka Pillar Series: After initial plans to replace the King’s Portrait Series with a portrait of Mahatma Gandhi,• Crore: A unit equal to ten million, or it was decided that the Lion Capital of Ashoka at Sarnath would be the focal point of the first series issued by 100 lakhs independent India.• For example, 30 million would correspond to 3 crores, or 300 lakhs, • Mahatma Gandhi Series: In 1996, the need for greater security features led to the introduction of a new series and would be written as 3,00,00,000, featuring a portrait of Mahatma Gandhi. Advanced security features include a modified watermark, a windowed with commas included at the security thread, a latent image, optically variable ink, and fluorescence. Other new features include intaglio thousand, lakh, and crore levels printing to assist the visually handicapped.Source: www.wikipedia.org Source: Reserve Bank of India. 49 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 50. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India’s Political System Republic of India India has a parliamentary form of government based on universal adult franchise The executive authority is responsible to the elected representatives of the people in the Parliament for all its decisions and actions Legislative Executive• A bicameral legislature was implemented primarily because a federal system was considered • President: the most feasible form of government for such a large and diverse country as India – The Head of the State and the Command-in-Chief of the Armed Forces• Rajya Sabha (Council of States): – Elected by an electoral college composed of members of both Houses of Parliament – A permanent body, not subject to dissolution, presided over by the Vice President and State Legislative Assemblies, the President must be a member of the Lok Sabha – Consists of not more than 250 members, of whom 12 are nominated by the President of – Does not exercise any constitutional powers on own initiative India and the rest elected, with allocation of seats based on the population of each State – Holds office for five years and is eligible for re-election – Terms of service are six years and every second year, one-third of the body’s positions are • Vice President: up for election – Ex-officio Chairman of the Rajya Sabha – Members are indirectly elected by the Legislative Assembly of their respective State or the – Elected by an electoral college composed of members of both Houses of Parliament, Electoral College of their respective Union Territory the Vice-President must be a member of the Rajya Sabha• Lok Sabha (House of the People): – Holds office for five years and is eligible for re-election – The term of the Lok Sabha, unless dissolved sooner, is five years, and the body elects its • Prime Minister: own presiding officer – The Head of the Union (Federal) Government – The Council of Ministers is responsible to the Lok Sabha – Leader of the majority party within the Lok Sabha, the Prime Minister can be a – Consists of not more than 552 members, with 530 members to represent States, 20 member of either House of Parliament and is formally appointed by the President members to represent Union Territories, and 2 members (nominated by the President) from the Anglo-Indian community – Responsible for the day-to-day functioning of the Union with the assistance of a Council of Ministers, appointed by the President on the advice of the Prime Minister – Members are directly elected on the basis of universal adult suffrage – Holds office for five years and is eligible for re-appointment Judiciary • Independent of the executive • The Supreme Court is appointed by the President and comprised of 30 judges and one Chief Justice • Guardian and interpreter of the Constitution • The Supreme Court typically sits in smaller benches of two to three, only meeting in benches of • The Supreme Court is the highest judicial tribunal, positioned five or more if there is a difference of opinion or controversy at the apex of a single unified system for the entire country • Supreme Court proceedings are conducted in English only Source: Morgan Stanley Smith Barney Investment Strategy; www.rajyasabha.gov.in; www.loksabha.gov.in; Supreme Court of India; Office of the Prime Minister; Embassy of India. 50 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 51. Morgan Stanley Smith Barney BACKGROUND Investment Strategy The Political Landscape in India Major Parties and Alliances• May 2014 is the election for the 16th United Progressive Alliance (UPA) National Democratic Alliance (NDA) Lok Sabha session• India’s political landscape is characterized by coalition politics with Indian National Congress (INC) Bharatiya Janata Party (BJP) the two largest coalitions being the Indian National Congress-led United • The Indian National Congress • The Bharatiya Janata Party (BJP) Progressive Alliance (UPA) and the (INC), also known as the Congress was formed in 1980; the party Bharatiya Janata Party-led National Party, was formed in 1885 traces its roots back to the Democratic Alliance • Beginning in the 1920s, the INC Bharatiya Jana Sangh party actively agitated for Independence established in 1951 by Dr. Syama from British rule Prasad Mookerjee Flag of the • On a platform partially based on Flag of the • The Congress Party split into two Indian National Congress Bharatiya Janata Party factions in the 1960s when an Hindutva, defined by some as • Leader as of Mid-2012: “Cultural Nationalism,” and others • Leader as of Mid-2012: opposition group within the party Sonia Gandhi Nitin Gadkari emerged to challenge the authority as “Hindu Nationalism,” the BJP • Seats in 15th Lok Sabha: greatly increased its political • Seats in 15th Lok Sabha: of the Congress President at the 206/545 114/545 representation during the 1980s Other Select Parties time, Indira Gandhi • In response, Gandhi broke away from the Congress Party, • The BJP led a national coalition, the New Democratic Alliance forming a party called the New Congress, and subsequently (NDA), which ruled the government from 1998 to 2004 with Atal Bahujan Samaj Party Bihari Vajpayee as Prime Minister known as Congress (Indira), which would eventually be declared Emblem of the as the true Indian National Congress by India’s Election • As of mid-2012, the BJP was the leading member of the official Bahujan Samaj Party Commission opposition, the New Democratic Alliance • As of mid-2012, the Congress Party was the leading member of • While the BJP, like the Indian National Congress, has lost ground • Leader as of Mid-2012: the United Progressive Alliance, the ruling party of the to rising regional parties, the BJP has positioned itself as a party Bahan Kumari Mayawati government focused on good governance and development rather than just • Seats in 15th Lok Sabha: Hindutva to enhance its broad appeal 21/545 All India Trinamool Congress Janata Dal (United) Samajwadi Party • The All India Trinamool Congress • The present-day Janata Dal (United) (AITMC) was formed in 1997 by Mamata (JDU) party was formed in 2003 by the Flag of the Samajwadi Party Banerjee, the Chief Minister of West merger of the pre-existing Janata Dal Bengal as of mid-2012 (United) party and the Samata Party Flag of the Flag of the • As of mid-2012, the AITMC was a All India Trinamool Congress • As of mid-2012, the JDU was a regional Janata Dal (United) • Leader as of Mid-2012: regional party with a presence primarily party with a presence primarily in Bihar Mulayam Singh Yadav • Leader as of Mid-2012: in West Bengal • Leader as of Mid-2012: and Jharkhand Sharad Yadav • Seats in 15th Lok Sabha: Mamata Banerjee • In September 2012, the AITMC withdrew • Seats in 15th Lok Sabha: 22/545 from the UPA in response to a renewed • Seats in 15th Lok Sabha: 20/545 push on economic reforms by the INC 19/545 Source: www.india.gov.in; Election Commission of India; www.aicc.org.in; www.bjp.org; www.aitmc.org; www.janatadalunited.org; www.bspindia.org; www.samajwadiparty.in; “India: Domestic Issues, Strategic Dynamics, and U.S. Relations,” Congressional Research Service, September 2011; www.wikipedia.org; Wikimedia Commons. 51 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 52. Morgan Stanley Smith Barney BACKGROUNDInvestment Strategy Past and Present Leaders of India Prime Ministers of India Since Independence(1) Jawaharlal Nehru Lal Bahadur Shastri Indira Gandhi Morarji Desai Charan Singh Congress Congress Congress (R) Janata Janata (1947 – 1964) (1964 – 1966) (1966 – 1977) (1977 – 1979) (1979 – 1980) Indira Gandhi Rajiv Gandhi V.P. Singh Chandra Shekhar P.V. Narasimha Rao Congress (I) Congress (I) National Front National Front Congress (I) (1980 – 1984) (1984 – 1989) (1989 – 1990) (1990 – 1991) (1991 – 1996)Atal Bihari Vajpayee H.D. Deve Gowda I.K. Gujral Atal Bihari Vajpayee Dr. Manmohan Singh United Front United Front United Front National Democratic Alliance United Progress Alliance/Congress (1996 – 1996) (1996 – 1997) (1997 – 1998) (1998 – 2004) (2004 – ) Note: 1. Excludes Gulzari Lal Nanda who twice served as a caretaker Prime Minister, from May 1964 though June 1964 and in January 1966. Source: www.india.gov.in; Office of the Prime Minister. 52 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 53. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Key Political Figures Current and Emerging Figures in Indian Politics As of Mid-2012Emerging Figures Prime Minister Manmohan Singh • Born in September 1932 in the Punjab province of undivided India, Prime Minister Manmohan Singh is the 14thNarendra Modi Prime Minister of India and is the first Sikh and the first non-Hindu to serve as Prime Minister.• Born in September • Chosen by Prime Minister P.V. Narasimha Rao to serve as Finance Minister in 1991, PM Singh is widely 1950 in Vadnagar, regarded as being responsible for India’s transition from a centrally-driven economy to a market-driven economy. Narendra Modi has During his five years as Finance Minister, PM Singh introduced economic reforms including the dismantling of served as the the “License Raj” and the liberalization of trade, exchange rate, and foreign direct investment policy. Chief Minister of • With the resignation of his former Finance Minister, Pranab Mukherjee, as of mid-2012 observers were hopeful Gujarat since 2001. that PM Singh, while effectively acting as his own Finance Minister, would renew the push for reforms, such as multi-brand retailing, before the end of his term in 2014.• Modi has developed a reputation as a staunchly pro-business leader, with • Since assuming the office of Prime Minister in 2004, PM Singh has overseen India’s concerted push for inclusive growth, focusing on health, education, and disadvantaged groups. business leaders attracted to Modi’s promotion of small and efficient • In 2005, PM Singh negotiated a landmark nuclear agreement with former US President George W. Bush government. facilitating nuclear cooperation between the two countries. • After graduating from Panjab University in 1954 with a Masters in Economics, PM Singh studied economics at• Modi is a member of the main opposition the University of Cambridge where he earned a First Class Honours degree in 1957, and then subsequently earned party, Bharatiya Janata Party (BJP). a Ph.D. in Economics from Nuffield College at Oxford University in 1962.Montek Singh Ahluwalia Sonia Gandhi Mamata Banerjee• Born in November • Born Sonia Maino in December 1946 near • Born in January 1955 in Kolkata, Mamata 1943 in Delhi, Montek Vicenza, Italy, Sonia Gandhi is the leader Banerjee is the first female Chief Minister Singh Ahluwalia of both the Congress party and the of West Bengal and the leader of the as of mid-2012 served as Congress-led coalition government known Trinamool Congress (TMC), which left the Deputy Chairman of as the United Progressive Alliance (UPA). the UPA coalition government in the Planning Commission. • Gandhi married into the Nehru-Gandhi September 2012.• Montek spent 11 years with the World dynasty in 1968 after meeting Rajiv • As leader of the TMC, Banerjee has Bank prior to joining the Ministry of Gandhi while both were studying in emerged as a key opposition figure in the Cambridge. push for economic and government Finance, eventually serving under PM reforms including foreign direct Singh in the 1990s. • Rajiv Gandhi was assassinated in 1991, after which Sonia Gandhi spent six years investment, fuel subsidies, and the Lokpal• Montek has developed a reputation as a out of the public realm. bill. reformer who is able to bring groups to a • Sonia Gandhi was elected as the leader of • Banerjee has also served as Minister of consensus. the Congress party in 1998, and as leader Human Resource Development, Minister of the UPA in 2004. of Railways (twice), and Minister of Coals and Mines. Source: Morgan Stanley Smith Barney Investment Strategy; www.india.gov.in; Office of the Prime Minister; “Mischief Minister,” The Economist, April 21, 2012; www.aitmc.org; “Divide and Rule,” The Economist, February 3, 2011; “Economic Planning in India,” The Economist, February 18, 2012; Wikipedia; Wikimedia Commons. 53 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 54. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Mohandas K. Gandhi Also Known as Mahatma (“Great Soul”) Gandhi Mahatma Gandhi (October 1869 – January 1948) • Born on October 2, 1869 in the town of Porbandar in what is the present day Indian state of Gujarat, Mahatma Gandhi was one of the leaders of India’s independence movement. • Beginning in 1888, Gandhi spent three years studying law at the University College London after which he briefly returned to India for two years before accepting a position in South Africa in 1893. • Gandhi’s views on social injustice were shaped over the following 21 years spent in South Africa, witnessing and experiencing racism and prejudice. Gandhi became involved in the politics of the colony as he agitated for Indians’ right to vote and against mandatory registration with the government. • During his time in South Africa, Gandhi began to develop a form of protest which he called satyagraha, or “truth force,” which drew upon the non-violent Jain and Vaishnava traditions of his native Gujarat. • Upon returning to India in 1915, Gandhi implemented his practice of satyagraha for various groups including indigo cultivators, farmers, and mill workers; in 1920, he initiated the two year non-cooperation movement which entailed boycotts of British goods and institutions, after which Gandhi was imprisoned for six years. • In 1930, Gandhi launched a new campaign centered around civil disobedience, leading a month-long ‘Salt- March’ to protest a recently instated salt tax. The campaign included protests, boycotts, picketing, and non- payment of rents, revenue, and taxes. The movement was widespread when active and lasted into 1934.Source: Wikimedia Commons. • In 1942, Gandhi secured support for a new movement demanding immediate independence for India. This Gandhi on Satyagraha civil disobedience movement was known as the Quit India movement, or “Do or Die.” Many of the movement’s leaders, including Gandhi, were preemptively imprisoned. “Satyagraha is a process of educating public opinion, such that it covers all the elements of • Following his release due to poor health in 1944, it became increasingly apparent that India was going to the society and in the end makes itself achieve independence from the British Crown; while Gandhi was imprisoned, the Muslim League had moved irresistible.” to the center of the political arena and was steadfast in its call for a separate Muslim state. Gandhi was “Satyagraha is a relentless search for truth and a opposed to the concept of partition, and set upon fasting to quell the inter-communal violence that was determination to search truth.” gripping the country.Source: www.mkgandhi.org. • On January 30, 1948, Gandhi was assassinated by a Hindu nationalist as he was preparing to address a prayer meeting. Source: India: A History, John Keay, Grove Press, 2000; www.india.gov.in; www.mkgandhi.org; www.wikipedia.org. 54 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 55. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Jawaharlal Nehru Jawaharlal Nehru (November 1889 – May 1964) • Born on November 14, 1889 in Allahabad in what is the present day Indian state of Uttar Pradesh, Jawaharlal Nehru was one of the leaders of India’s independence movement and served as the first Prime Minister of independent India from 1947 through 1964. • At the age of 16, Nehru continued his education in England, studying at Harrow School and then Trinity College. After studying law at the Inner Temple in London, Nehru returned to India in 1912 to practice law. • In 1916, Nehru joined the Indian National Congress and was subsequently elected President of the Congress Party in the late 1920s, succeeding his father, Motilal who had served twice as President. • Nehru was one of the first leaders to explicitly call for full Indian independence as opposed to dominion status, which his father had advocated in what came to be known as the “Nehru Report.” • Nehru opposed the partition of the country into modern-day Pakistan and India; however, when the proposal for a united India consisted of a provincial scheme, Nehru decided to accept partition if it meant securing an India with a strong central government, of which he was a forceful advocate. Source: Wikimedia Commons. • In 1947, Nehru was elected by the Indian National Congress as the first Prime Minster of independent India, Excerpt from Nehru’s Inaugural and then subsequently re-elected in India’s first general election in 1951 and two ensuing elections, serving Address titled “Tryst with Destiny” until 1964 when on May 27 Nehru died after suffering a stroke and a heart attack. “Long years ago we made a tryst with destiny, • Nehru also served as Chairman of the Planning Commission, overseeing the creation of the first three Five and now the time comes when we shall redeem our pledge, not wholly or in full measure, but Year Plans, and steering India towards a socialist ideal and a goal of self-reliance. very substantially. At the stroke of the midnight hour, when the world sleeps, India will awake to • One of the key differences between Nehru and Mahatma Gandhi was Nehru’s embrace of industrialization, life and freedom. A moment comes, which which was reflected through the emphasis on building India’s industrial capacity in the second Five Year Plan comes but rarely in history, when we step out (1956 – 1961). from the old to the new, when an age ends, and when the soul of a nation, long suppressed, finds • During Nehru’s time as Prime Minister, he also served as India’s Minister of External Affairs, championing utterance. It is fitting that at this solemn moment we take the pledge of dedication to the service of the Non-Aligned Movement, a foreign policy strategy which shunned the security pacts of the time being India and her people and to the still larger cause pursued by the US and Soviet Union. of humanity.”Source: www.wikipedia.org Source: India: A History, John Keay, Grove Press, 2000; www.india.gov.in; www.wikipedia.org. 55 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 56. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Major Private Business Houses in India Major Private Business Houses Autos in India – At The Frontier of Affordable Transportation 2011 SalesTata Nano Name $Bn Controlled by Generation Comment• As of mid-2012, the Tata Nano was the cheapest car in the world, at a price of Tata Group 84 Tata family trusts 5th Active in many sectors. approximately $3,000.• The Nano seats four people and is powered by a two cylinder engine that runs on regular gasoline and can achieve Reliance Industries 58 Mukesh Ambani 2nd Significant in energy and chemicals. a top speed of 105 km/h, or approximately 65 mph. Aditya Birla 35 KM Birla 4th Medtals, textiles, cement, and mobile phones. HQ moved from Mumbai to Iran and thence, to Europe. Hinduja 25 Hinduja brothers 2nd Transport, energy, and finance. Tata NanoBajaj RE60 Essar 17 Ruia brothers 1st Active in steel, ports, shipping, and energy.• The Bajaj RE60, priced around $3,000, is a four-wheeler for intra-city transport, as opposed to a full-fledged car; it is Steel and power. Four brothers each have their own OP Jindal 14 Jindal family 2nd manufactured by Bajaj Auto, the world’s subsidiaries. largest three-wheeler maker as of mid- 2012. Mahindra 13 Mahindra family 3rd Known for tractors and SUVs; also in finance and hotels.• The RE60 is powered by a 200 cubic centimeter engine that runs on gasoline and can achieve a top Bharti 12 Sunil Mittal 1st Largest mobile firm; diversified into retail, TV, and finance. speed of 70 km/h, or approximately 43 mph. Vedanta 11 Anil Agarwal 1st Natural-resources group. Bajaj RE60Source: “’World’s Cheapest Car’ Tag Backfires for Tat Nano,” Reliance Group 9 Anil Ambani 2nd Active in power, infrastructure and mobile.The Economic Times, January 24, 2012; ”In India, a ‘People’sCar’ Aimed at Rickshaw Drivers,” The New York Times,January 2, 2012; Wikimedia Commons. Source: “The Bollygarchs’ Magic Mix,” The Economist, October 22, 2011. 56 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 57. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Select Structural Reform Initiatives Since 1991 Emblem of Enacted and Provisional KarnatakaWhat Catalyzed the Reform External Process? Trade Capital Account• After experiencing a balance of payments crisis and the election of • Exchange Rate: • Foreign Direct Investment (FDI): a third government in 18 months in – The Indian Rupee was devalued twice in July 1991 and the Rupee – Pre-liberalization, India only allowed FDI through foreign moved to a unified exchange rate in March 1993. In general, the collaboration in areas of high technology and high priorities to build June 1991, the new Indian Reserve Bank of India intervenes only to mitigate volatility. national capacity; India has since gradually opened up FDI to the government, led by the Congress • Tariffs: majority of sectors, in January 2012 allowing 100% FDI ownership Party’s Narasimha Rao as Prime of single-brand retail outlets. – Import tariffs have been significantly lowered as the weighted Minister and Dr. Manmohan Singh average tariff rate on all products has declined from 77.2% in • Portfolio Investments: as Finance Minister, committed FY1992 to 7.0% in FY2010. – India has gradually opened its capital markets to Foreign Institutional Investors (FIIs) and to Qualified Foreign Investors (QFIs). As of India to a path of structural reform mid-2012, FIIs were allowed to invest in Indian sovereign and corporate debt as well as in equities and mutual funds, while QFIs were allowed to invest directly in equities and mutual funds (both equity and debt). Internal Fiscal Industrial Infrastructure • Tax Structure: • License ‘Raj’: • Roads: – India has reduced personal and corporate taxes from – India has effectively abolished the onerous and all- – With the initiation of the National Highways Development FY1992 levels of 56% and 50%, respectively, to 30% for encompassing licensing regime with licenses now required Project in 1998, spending on road development was FY2013. only for a limited number of industries including alcohol, significantly increased, aimed at upgrading those highways – Planned transition (as of April 1, 2013) from a system of tobacco products, and defense equipment. that comprise only 2% of the road network, yet carry 40% numerous indirect taxes to a consolidated nationwide goods • Deregulation of Product Prices: of total traffic. and services tax (GST). – Prices of several goods have been deregulated, including steel, – The Pradhan Mantri Gram Sadak Yojana Plan was initiated – Planned implementation (as of April 1, 2013) of new direct cement, paper, and pulp. in 2000, with the goal of increasing road connectivity for tax code system to replace the Indian Income Tax Act of villages with populations as small as 250 people. • Reduction of Protection to Small and Medium Enterprises: 1961. • Telecom: – Items reserved for small-scale industries have been drastically • Fiscal Prudence: reduced from a peak of 873 in FY1984 to 20 as of mid-2012. – After opening up services such as cellular, radio paging, and – After pursuing various public finance reforms in the early data services to the private sector in FY1993, India’s • Privatization of State-Owned Enterprises: telecom industry has grown rapidly and as of mid-2012 1990s and mid-1990s, the government was able to reduce its consolidated deficit to 6.1% of GDP in FY1997 from 9.1% – Since FY2004, the Indian government has gradually divested featured the lowest telecom tariffs in the world. in FY1991. In response to increased spending (and a large positions in state-owned enterprises. For FY2012-13, the • Public Private Partnerships (PPPs): deficit) in the face of the global slowdown in 2008, the government set a divestment target of Rs. 30,000 crore (approximately $5.9 billion at the March 30, 2012 FX rate). – Post-2000, India has increasingly utilized the PPP model to 2011-12 Economic Survey by the Ministry of Finance more effectively build out its infrastructure. called for a renewed focus on fiscal consolidation. Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley & Co. Research; Planning Commission; Ministry of Finance; Ministry of Micro, Small and Medium Enterprises; “GST Likely to Come Into Effect from Next Fiscal: Sushil Modi,” The Economic Times, April 18, 2012; “Direct Tax Code Implementation from Next April: Report,” The Economic Times, April 19, 2012. 57 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 58. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India’s Five Year Plans Emblem of Gujarat Logo of the Planning CommissionPlanning Commission Overview of India’s Five Year Plans• The Planning Commission was Plan or Years established in March of 1950 with Guideline Covered Theme Key Features the mission to: Laying the Foundation for More Focus on increasing agricultural yield with investment in agriculture, community First 1951-1956 Rapid Future Development development, irrigation, and power projects – Assess the material, capital, and human resources of the country Major Strides in the Direction Increased focus on industrialization with a focus on heavy industry and related and recommend how to address Second 1956-1961 of Industrialization industries such as transport any deficiencies – Formulate a plan for the most Focus on increased agricultural production to achieve self-sufficiency in food grains Third 1961-1966 Self-Sufficiency and expansion of basic industries so that future industrialization may be driven effective and balanced utilization primarily by country’s own resources of the country’s resources – Prioritize the order of Fourth 1969-1974 Broadening Development Focus on the less developed areas of agriculture and industry development Poverty Alleviation and Self- Fifth 1974-1979 Reliance Focus on agriculture, energy, and the creation of employment opportunities – Identify factors that are hindering economic development Focus on the energy sector, reducing regional inequalities, and controlling population Sixth 1980-1985 Poverty Alleviation growth – Appraise the execution of plans Economic and Technological Focus on higher productivity in all sectors, continued job creation alongside a new• Since the Planning Commission Seventh 1985-1990 Modernization focus on human resource development, and increased food grains production began to incorporate policy and governance recommendations into Transition from Centrally- Primary focus on human development through job creation, population control, national five year plans, it has Eighth 1992-1997 Planned to Market-Led improvement in literacy, increased access to education, and improved drinking water become an important voice in the Economy and primary healthcare facilities call for reforms Growth with Social Justice and Focus on agriculture and rural development, stable prices, and greater empowerment Ninth 1997-2002 Equity• Planning Commission Head, of women and socially disadvantaged groups Montek Singh Ahluwalia, has Focus on specific, quantifiable, targets for areas including poverty reduction, emerged as a key figure as of mid- Holistic and Quantifiable Tenth 2002-2007 Planning employment, literacy, and education, as well as recommendations for improvement in 2012 policy and governance Eleventh 2007-2012 Inclusive Growth Focus on education (“National Education Plan”) and socially disadvantaged groupsSource: Planning Commission; “Economic Planning in India,” The Economist, February 18, 2012; Faster, Sustainable, and More “Montek Singh Ahluwalia Emerges as Key Eco Twelfth 2012-2017 Focus on education, infrastructure, and health Strategist,” The Times of India, June 29, 2012. Inclusive Growth Source: Morgan Stanley Smith Barney Investment Strategy; Planning Commission. 58 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 59. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India’s 12th Five-Year Plan (2012 – 2017) Faster, Sustainable, and More Inclusive Growth Emblem of Orissa Sectoral Growth Rates Infrastructure Planned and Targeted• India’s Twelfth Five Year Plan calls • Energy: Twelfth Plan for an increased allocation of Tenth Eleventh 9.0% 9.5% – Prioritization of energy efficiency through the rationalization of energy resources, representing Plan Plan Target Target prices (by reducing subsidies and tariff controls) and the promotion of non- price initiatives approximately 1.5 percentage (1) Agriculture, Forestry, and 2.3 3.2 4.0 4.2 – Modernization of the electricity distribution network to make the sector points of GDP, to each of three Fishing financially viable sectors: • Transport: Mining and Quarrying 6.0 4.7 8.0 8.5 – Infrastructure – Leverage energy efficiency of railways through modernization of existing lines, construction of dedicated freight corridors, and adjustment of fare – Education structures Manufacturing 9.3 7.7 9.8 11.5 – Health Education Electricity, Gas, and 6.8 6.4 8.5 9.0 Water Supply • Primary: Construction 11.8 7.8 10.0 11.0 – Expansion in the number of suitably qualified and appropriately trained• Other areas indentified as priorities human resources and overhaul the regulatory framework for teacher include: training Trade, Hotels, • Secondary: – Sustainable management of Transportation, – Expansion of gross enrollment ratio as larger numbers of children attain the natural resources Communication, and 11.2 9.9 11.0 11.2 eight years of pre-requisite primary schooling Storage – Social and regional equity • Higher Education: Finance, Insurance, Real – Strategic shift from mere expansion to improvement in quality – Urbanization Estate, and Business Services 9.9 10.7 10.0 10.5 – Science and technology Health – Tourism, hospitality, and Community, Social, and construction Personal Services 5.3 9.4 8.0 8.0 • Facilities: – Strengthening the health infrastructure through construction of additional – Governance Total GDP 7.8 8.2 9.0 9.5 Sub-centers, Primary Health Centers, and Community Health Centers in – Innovation not only rural, but urban areas as well – Computerization and interconnectivity of health facilitiesSource: Planning Commission, An Approach to the Industry 9.4 7.4 9.6 10.9 • Human Resources: Twelfth Five Year Plan, October 2011. – Expansion of teaching institutions for doctors, nurses, and paramedics to Services 9.3 10.0 10.0 10.0 address India’s country-wide shortage of healthcare professionals Note: 1. Possible revisions for farm sector GDP growth from an expected good harvest in 2011-12 may result in a higher average for the Eleventh Plan, at 3.3 – 3.5%. Source: Morgan Stanley Smith Barney Investment Strategy; Planning Commission, An Approach to the Twelfth Five Year Plan, October 2011. 59 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 60. Morgan Stanley Smith Barney BACKGROUNDInvestment Strategy Military Resources in East and Central AsiaMilitary Resources in East and Central Asia Combat-Capable Surface Vessels Active Personnel Fixed-Wing Aircraft Submarines Above Corvette Size Missiles Full range of conventional and nuclear missiles, including the China 2,300,000 1,998 71 80 new Dong Feng "carrier killer" that can potentially hit a moving aircraft carrier 2,000 miles away Conventional and nuclear medium-range missiles, including anti- India 1,300,000 691 16 47 ship and assorted anti-air missiles Conventional medium-range missiles and possible nuclear North Korea 1,200,000 620 70 3 warheads US Pacific Command 325,000 1,900 39 80 Full range of conventional and nuclear missiles South Korea 655,000 498 23 47 Air and sea defense missiles Pakistan 617,000 433 8 9 Conventional and nuclear short-range missiles Vietnam 482,000 219 2 7 Air and sea defense missiles Taiwan 290,000 509 4 26 Air and sea defense missiles Japan 248,000 469 18 49 Coastal air and sea defense missiles Russia 130,000 445 23 17 Full range of conventional and nuclear missiles Malaysia 109,000 82 2 8 Air and sea defense missiles Philippines 125,000 34 0 1 Anti-air missiles Brunei 7,000 0 0 0 Air and sea defense missiles Source: “The Military Balance 2011,” by the International Institute for Strategic Studies, March 8, 2011; Stockholm International Peace Research Institute. 60 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 61. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India’s Nuclear Energy IndustryIndia’s Three Stage Nuclear Overview of India’s Nuclear Energy IndustryDevelopment Program • The Department of Atomic Energy (DAE), founded on August 3, 1954, is responsible for the development of nuclear power technology.1• Pressurized Heavy Water Reactors • India has pursued a three-stage nuclear development program centered around India’s limited uranium resources and plentiful thorium (PHWRs): resources. – High-efficiency, natural uranium-fueled • India’s development of its nuclear capabilities, and inherently, its nuclear weapons capability, left the county isolated from the rest of the PHWRs produce plutonium as a by- nuclear nations as India declined to sign the 1970 Nuclear Non-Proliferation Treaty. This further highlighted the need to develop thorium- product fueled reactors as the Nuclear Suppliers Group (NSG), a 45-nation body which sets guidelines for trade in nuclear materials and technology, was prohibited from supplying India with uranium.2• Fast Breeder Reactors (FBRs): • In 2005, Prime Minister Manmohan Singh and US President George W. Bush negotiated a nuclear cooperation agreement. – Plutonium created by first stage PHWRs is used to fuel FBRs which in • In September 2008, the Nuclear Suppliers Group (NSG) passed a waiver allowing nations within the NSG to transact with India, thus turn breed more fuel than they consume opening up the global supply of uranium to India’s reactors. as they produce uranium-233 as well as • Foreign participation in the Indian nuclear industry has been stunted by the enactment of the Indian Civil Liability for Nuclear Damage more plutonium as by-products Act, passed in August 2011, which explicitly does not limit the liability a foreign nuclear supplier would face in the event of an incident. • According to BP’s 2012 Statistical Review of World Energy, nuclear power in India consists of only 1.3% of total power generation,3• Thorium Reactors (FBRs): however, the DAE aims to increase the mid-2012 installed capacity of 4,780 MWe capacity spread across 20 reactors to 14,600MWe by – India’s abundant supplies of thorium as FY2021 and 27,500 MWe by FY2024. well as the uranium-233 produced as a by-product from Stage Two’s FBRs are Source: Morgan Stanley Smith Barney Investment Strategy; World Nuclear Association; “Quantum Politics,” The Economist, September 9, 2008; “Cant Do More on Nuclear Liability, India Tell US,” Hindustan Times, November 18, 2011. used to fuel Thorium Reactors, which, in turn, produce additional uranium-233 Top 10 Producers of Nuclear Energy by 2020 Where India is Building Its ReactorsSource: India’s Nuclear Separation Plan: Issues and Views, As of March 2012 Congressional Research Service, Foreign Affairs, Estimates are as of March 2011 Defense, and Trade Division, December 22, 2006. 2010 2020E 20 Operating and 7 Under Construction (Including 1 PFBR) Reactor Net Capacity % of Reactor Net Capacity % of Country Units (MWe) World Units (MWe) World Narora Rajasthan 1 China 12 9,706 3% 96 112,270 20% 1,180 MWe 440 MWe 1,400 MWe 2 United States 104 100,367 27% 111 109,183 19% 3 France 58 63,130 17% 60 66,370 12% 4 Japan 54 46,824 12% 59 53,589 9% 5 Russia 31 21,743 6% 43 32,289 6% 6 South Korea 21 18,460 5% 30 29,380 5% Kakrapar 7 Germany 17 20,379 5% 17 20,379 4% 440 MWe Kalpakkam 1,400 MWe 500 MWe Source: International Atomic Energy Agency. 8 India 20 4,388 1% 36 18,092 3% Tarapur Madras India’s First Prototype Fast Breeder 9 Canada 18 12,652 3% 21 15,237 3% 1,400 MWe 440 MWe Reactor, Under Construction in Kalpakkam 10 Ukraine 15 13,230 4% 17 15,130 3% Kaiga Kudankulam (Tamil Nadu, See Map at Right), Was Set Global Total 442 374,806 606 568,973 880 MWe 2,000 MWe to be Commissioned in Early 2013 Mwe: Installed Capacity Mwe: Capacity Under Construction Source: The Ux Consulting Company; Morgan Stanley & Co. Research, “Global CleanTech: Tohoku Quake: Implications for Clean Technology,” March 22, 2011. Source: Department of Atomic Energy; Morgan Stanley Smith Barney Investment Strategy. 61 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 62. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Reserve Bank of India (RBI) Overview of the Reserve Bank of India • Established by the Reserve Bank of India Act of 1934, with operations commencing in 1935, the Reserve Bank of India (RBI) has seen its scope expanded to activities including: (i) monetary policy; (ii) currency issuance; (iii) banking to the government; (iv) banking to banks; (v) regulation of the banking system; (vi) management of foreign exchange; (vii) maintenance of financial stability; (viii) regulation and supervision of payment and settlement systems; (ix) and economic development. • The primary authority over the RBI resides with the Central Board, consisting of the Governor, Deputy Governors, and select Directors of relevant local boards, who oversee and delegate specific functions through the Committee of the Central Board which typically meets weekly. • In 1998, the RBI switched from an operating target which focused only on broad money (M3) to a multiple indicator approach for monetary policy which considers and juxtaposes data on interest rates, currency, credit, trade, capital flows, fiscal position, inflation, and Reserve Bank of India Mandate exchange rates, with output data to assess underlying trends in different sectors. To set a monetary and financial • The RBI utilizes various direct instruments to implement monetary policy, including: (i) the Cash Reserve Ratio (CRR); (ii) the Statutory course that will sustain the nation’s Liquidity Ratio (SLR); and (iii) sector-specific refinance facilities. economic growth and health during • The RBI utilizes various indirect instruments to implement monetary policy, including: (i) the Liquidity Adjustment Facility (LAF) global do wnturns, periods of auctions to manage liquidity on a daily basis and maintain overnight money market rates within an informal corridor set by the repo and volatility, and global upturns alike reverse repo rates; and (ii) Open Market Operations (OMO) in the form of the outright purchase/sale of government securities to manage the level of liquidity over the medium term.RBI’s Central Board Selected Monetary Policy Instruments of the RBI Governor • Cash Reserve Ratio: The share of net demand and time liabilities that Dr. D. Subbarao banks must maintain as cash balances with the RBI to ensure that banks Education: Ph.D. in Economics from Andhra University, MIT Humphrey have sufficient cash to cover customer withdrawals. Fellow, Masters degree in Economics from Ohio State University, Masters degree in Physics from IIT Kharagpur, and a Bachelors degree in Physics • Statutory Liquidity Ratio: The share of net demand and time liabilities from IIT Kharagpur. that banks must maintain in safe and liquid assets, such as government Deputy Governors securities, cash, and gold. Dr. K.C. Chakrabarty Shri Anand Sinha • Repo/Reverse Repo Rate: The rate at which the RBI provides/absorbs Dr. Subir Gokarn Shri H.R. Khan liquidity to/from commercial banks via the Liquidity Adjustment Facility (LAF). Directors Ten Directors Nominated by One Gov’t Four Directors, One from Gov’t for Their Expertise in Official Each Local Board Various Fields Source: Morgan Stanley Smith Barney Investment Strategy; Reserve Bank of India. 62 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 63. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India’s Foreign Exchange Reserves Emblem of FY1980 – FY2012 Kerala • From 1990 through 2008, India’s India’s Foreign Exchange Reserves foreign exchange reserves exhibited Fiscal Year Ended March 31 steady growth, growing at a $US Billion # of Months of Imports Compound Annual Growth Rate 450 18 (CAGR) of 27.4%. • In 2009, India’s foreign exchange reserves dropped as the Reserve 400 16 Bank of India utilized reserves to manage the depreciation in the Rupee when the US Dollar rose in 350 14 value in response to the Lehman Brothers bankruptcy. 310 305 294 300 12 279 252 Six Key Components of 250 10 Economic Takeoff in the West 199 200 8 1. Competition 2. Scientific Revolution 142 152 150 6 3. Rule of Law and 113 Representative Government 100 4 76 4. Modern Medicine 54 5. Consumer Demand 42 50 32 38 2 19 25 22 26 29 6. Work Ethic, Savings, and 7 7 4 5 6 6 7 7 6 5 4 6 9 10 Capital Accumulation 0 0 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12Source: Civilization: The West and the Rest, by Niall Ferguson Source: Reserve Bank of India. (Allen Lane, 2011). Note: 1. Data are as of March 2012. 63 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 64. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Foreign Direct Investment Flows Emblem of Jharkhand• In the post-Millennium era, investment Annual Foreign Direct Investment Net Inflows to India flows into India have risen along with 1995 – 2012, Fiscal Year Ended March 31 those of several other developing countries US$ Billions % of GDP 50 5• In the post-2000 era, a significant 41.7 amount of capital inflows have been Average annual Foreign Direct Investment in routed through Mauritius, an island 40 34.7 4 India over the five year period from 2006 to 33.1 33.0 nation off the southeast coast of 2011 has increased more than twenty times Africa, which enjoys a tax treaty with 30 25.9 3 relative to 1995 levels 22.7 India 20 2• In the post-2000 era, the Services sector has attracted the most capital 8.9 10 6.1 4.3 6.0 1 2.1 2.8 3.6 2.5 2.2 4.0 5.0 1.3Investment Flows – OriginsPercentage Share of FDI Inflow by Country 0 0April 2000 – April 2012 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Other Source: Reserve Bank of India. 29.6% Mauritius 37.6% US Foreign Direct Investment in India Relative to Three Other Emerging Market Economies 6.2% 2000 - 2010 Japan US$ Billions Singapore 7.2% U.K. 9.4% 10.0% 200 185 175 160Investment Flows – Destinations 150Percentage Share of FDI Inflow by Sector 124 117 114April 2000 – April 2012 Services 100 75 19.0% Telecom 49 55 55 Other 44 47 45 48 43 7.3% 50 38 33 35 43 36 36 59.8% 30 26 24 22 18 15 19 25 Consturction 17 15 13 20 5 6 10 8 6 8 4 3 3 3 4 6.7% Computer Software 0 and Hardware 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Housing and Real Estate 0.7% 6.5% India China Brazil Russia Source: Department of Industrial Policy and Promotion. Source: World Bank Databank, December 2011. 64 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 65. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India’s Trade Activity with the United States Emblem of Assam Indias Trade with the United States, CY2002 – CY2011• In Fiscal Year 2011, the United States was India’s third largest trading partner. (US$ Billion) and percentage change as indicated• In Calendar Year 2011, India was the Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 United States’ thirteenth largest trading US Exports 4.1 5.0 6.1 7.9 9.7 14.9 17.6 16.4 19.2 21.6 partner.• Over the 2002 – 2011 time frame, India’s % Change YoY 21.5 22.7 29.5 22.4 54.6 18.2 (7.2) 17.4 12.4 total trade activity grew at a compound annual growth rate of 15.4%. US Imports 11.8 13.1 15.6 18.8 21.8 24.1 25.7 21.2 29.5 36.2 Source: US Department of Commerce, Bureau of the Census, Foreign Trade Division; Data are as % Change YoY 10.5 19.3 20.8 16.1 10.3 6.8 (17.7) 39.5 22.5 of December 31, 2011. Total Bilateral Trade 15.9 18.0 21.7 26.7 31.5 39.0 43.3 37.5 48.8 57.8 US Balance (7.7) (8.1) (9.5) (10.9) (12.2) (9.1) (8.1) (4.8) (10.3) (14.6) Source: US Department of Commerce, Bureau of the Census, Foreign Trade Division; Data are as of December 31, 2011. US Direct Investment in India Top US Exports to India Top US Imports from India US$ Billions (US$ Billion) (US$ Billion) 2.5 Description 2010 2011 % Change Description 2010 2011 % Change Gems - Diamonds 2.8 3.6 28.3% Gems - Diamonds 5.2 6.3 21.1% 2.0 2.0 Chemicals - Fertilizers 1.4 1.6 15.1% Apparel & Household Goods - Cotton 4.0 4.2 4.8% 1.7 1.4 Metallurgical Grade Coal 0.5 0.9 90.5% Medicinal, Dental, Pharma Preparations 3.2 3.9 22.5% 1.5 Petroleum Products - Other 0.6 0.9 34.2% Petroleum Products - Other 2.2 3.1 41.7% 0.9 Non-Monetary Gold 1.2 0.8 (34.6%) Jewelry 1.5 1.5 2.8% 1.0 0.7 0.7 Chemicals - Organic 0.8 0.8 (1.2%) Other - Tabacco, Waxes, Non-Food Oils 0.6 1.4 117.6% 0.4 0.4 0.4 0.5 0.5 0.3 Industrial Engines 0.7 0.8 7.6% Chemicals - Organic 0.8 1.0 28.8% Industrial Machinces - Other 0.6 0.7 21.4% Other - Parts & Accessories 0.6 0.7 19.6% 0.0 Chemicals - Other 0.5 0.7 28.4% Other - Industrial Machinery 0.5 0.7 43.7% 00 01 02 03 04 05 06 07 08 09 10 Civilian Aircraft, Engines, Apparel & Household Goods - 1.2 0.6 (44.7%) 0.5 0.7 28.6% Equipment, & Parts Other Textiles Source: Morgan Stanley & Co. Research; CEIC. Data are as of December 31, 2011. Source: US Department of Commerce, Bureau of the Census, Foreign Trade Division; Source: US Department of Commerce, Bureau of the Census, Foreign Trade Division; Data are as of December 31, 2011. Data are as of December 31, 2011. 65 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 66. Morgan Stanley Smith Barney BACKGROUND Investment Strategy India’s Trade Activity with the World Emblem of Punjab Indias Trade with the World• India’s global trade has increased (US$ Billion) and percentage change as indicated dramatically in recent years. FYE March 31 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E• Over the 2003 – 2011 period, Exports 53.8 66.3 85.2 105.2 128.9 166.2 189.0 182.2 250.5 301.0 370.0 India’s total trade activity grew at a Compound Annual Growth Rate of % Change YoY 20.3 23.3 28.5 23.4 22.6 28.9 13.7 (3.6) 37.4 20.2 22.9 23.3%. Imports 64.5 80.0 118.9 157.1 190.7 257.6 308.5 300.6 380.9 482.0 561.0• India has dramatically reduced tariffs since its Balance of % Change YoY 14.5 24.1 48.6 32.1 21.4 35.1 19.8 (2.6) 26.7 26.5 16.4 Payments crisis in 1990-91. Source: Reserve Bank of India; Directorate General Total Trade 118.2 146.3 204.1 262.2 319.6 423.8 497.5 482.8 631.4 783.0 931.0 of Commercial Intelligence and Statistics. Tariff Rates in India Balance (10.7) (13.7) (33.7) (51.9) (61.8) (91.5) (119.5) (118.4) (130.5) (181.0) (191.0) Weighted Avg. of All Products Source: Reserve Bank of India; Directorate General of Commercial Intelligence and Statistics; Morgan Stanley & Co. Research. Data are as of March 31, 2011. Estimates are as of Fiscal Year Tariff (%) May 2012. 1992 77.2 Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a 1993 55.1 solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 1994 38.9 1995 39.2 1996 32.9 Indias Leading Import and Export Products Indias Leading Import Suppliers and Export Destinations 1997 31.4 (US$ Billion), FYE March 31 (US$ Billion), FYE March 31 1998 26.8 Description 2010 2011 % Change Economy 2010 2011 % Change 1999 27.3 Leading Imports Leading Import Suppliers 2000 30.4 Mineral Fuels and Oil 96 116 29.0% China 31 43 41.1% 2001 31.1 Precious Stones & Metals, Jewelry 46 77 52.1% United Arab Emirates 19 33 68.0% 2002 25.9 Switzerland 15 25 68.7% Nuclear Power Machinery 24 29 39.4% 2003 22.4 Electrical Machinery 22 27 54.9% Saudi Arabia 17 20 19.2% 2004 21.8 Chemicals - Organic 9 13 34.1% United States 17 20 18.1% 2005 18.4 2006 11.8 Leading Exports Leading Export Suppliers 2007 11.0 Mineral Fuels and Oil 301 389 29.1% United Arab Emirates 24 34 43.3% 2008 9.5 Precious Stones & Metals, Jewelry 236 310 31.4% United States 20 26 30.8% 2009 8.0 Vehicles (Excluding Railway) 100 121 20.5% China 12 20 68.8% 2010 7.0 Electrical Machinery 47 68 44.1% Hong Kong 8 10 31.0% Source: Planning Commission. Data are as of Singapore 8 10 35.7% January 15, 2012. Iron and Steel 39 52 34.0% Source: Directorate General of Commercial Intelligence and Statistics, Export Import Source: Directorate General of Commercial Intelligence and Statistics, Export Import Data Bank. Data are as of March 31, 2011. Data Bank. Data are as of March 31, 2011. 66 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 67. Morgan Stanley Smith Barney Investment Strategy The Lotus National Flower of IndiaAs an auspicious symbol of Indian culturesince time immemorial, the Lotus (Nelumbo The Neck of a Sitar,nucifera) is a sacred flower and occupies a A Classical Indianunique position in the art and mythology of Musical Instrumentancient and modern India. Source: Wikimedia Commons. Section 2 Issues for Consideration Origin of the word “India” The origin of the word “India” begins with the Sanskrit word for river, sindhu. The Vedic Culture described the Panjab region as sapta-sindhu (“[land of] the seven rivers”). When transcribed into ancient Persian, a close relative of Sanskrit, the initial ‘s’ was replaced with an ‘h’ (a common occurrence), resulting in the Persian word hind[h]u. When the Persian hind[h]u was rendered into Hindu Goddess, Lakshmi, Greek, the initial ‘h’ was dropped, leaving the root ind (“India,” “Indus”). Holding and Standing on a Lotus Source: India: A History, John Keay, Grove Press, 2000; www.wikipedia.org. Source: www.india.gov.in; Wikimedia Commons. 67 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 68. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Select Forces Affecting India’s Securities Prices Emblem of Chhattisgarh• Among the key forces expected to affect India’s securities prices over India’s Securities Prices the near-to-intermediate term are: – Fundamental Factors – Valuation Factors Fundamental Factors Valuation Factors – Psychological, Technical, and • Global, pan-Asian, and • Price-Earnings Liquidity Factors indigenous Indian Ratios economic and geopolitical conditions • Price-to-Sales Ratios Tandava • Population growth, • Price-to-Book Ratios productivity, and earnings trends • Dividend Yields • Technological progress • Ratios relative to and innovation those in other • Monetary, fiscal, and countries and to currency policies historical levels in India • The degree of substantive progress in implementing economic, political, and reform goals Shiva Dancing the TandavaTandava is an energetic dance performed Psychological, Technical, and Liquidity Factorsby the Hindu god, Shiva. Tandava • Domestic and foreign investors’ capital flowsrepresents Shiva’s role in the cycle ofcreation, sustenance, and dissolution of • Consumer, business, and investor confidencethe universe. • Confidence in the degree of enlightenment in the authorities’Source: www.wikipedia.com; Wikimedia Commons. policies affecting the economy and financial markets Source: Morgan Stanley Smith Barney Investment Strategy. 68 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 69. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Assessing India’s Economic Environment Emblem of Fueling the Transition to a Higher Growth Trajectory Haryana The Road Traveled • The Indian economy appears to be • Since the 1980s, the Indian economy has been among the most rapidly growing major economies in the capable of achieving a higher growth world. In the early 2000s, India appeared to transition to a higher growth trajectory ( >8% GDP growth) trajectory due primarily to improving driven primarily by three sources: demographics, structural reforms, and i. Improving Demographics: As India’s working age population has grown, the dependency ratio (the globalization percentage of the population dependent upon the working age population) has been declining, fueling • The Indian government has expressed economic growth through a growing and more educated labor force and higher savings rates as less its continued commitment to structural money is allocated to dependents reforms in support of economic growth ii. Structural Reforms: The Indian government has continued the process of structural reform in the trade, • At times, India’s higher growth regulatory, and investment sectors to encourage private investment, enabling increased investment in trajectory has been challenged by India’s infrastructure adverse global economic conditions iii. Globalization: After fostering an environment more receptive to integration into the global economy, and insufficient policy execution India has experienced a steady rise in its export-to-GDP ratio and its capital inflows-to-GDP ratio, Indo-Roman Trade specifically increasing the services exports which Morgan Stanley Research believes to be of high addedWith the opening of a maritime trade route to value and with the potential to catalyze higher national savings rates and subsequent investmentIndia as a result of Rome’s acquisition ofEgypt in the late 1st century BC, a robust trade The Road Aheadrelationship developed between Rome andIndia. Trading ships carried by the monsoon • The Indian government has continually expressed its commitment to structural reforms aimed at drivingwinds traveled to India with Roman bullion economic growth. These reforms include:and returned with “black gold” (pepper) and i. Consolidation of the fiscal deficit to more sustainable levels;various other aromatic spices. Indian trading ii. A continued focus on infrastructure investment, particularly in energy and transport;stations facilitating the trade dotted theEastern and Western coasts of India. iii. A commitment to universal primary education and upgrading the quality of higher education; iv. An increasing liberalization of policies relating to foreign direct investment in industries including trade; v. Ongoing divestment of government stakes in State-Owned Enterprises (SOEs); vi. Further integration of Foreign Institutional Investors (FIIs) and Qualified Foreign Investors (QFIs) into Indian capital markets in order to facilitate investment by Indian corporations via access to Gold Coin of Roman Black and White deeper pools of capital; and Emperor, Augustus Peppercorns vii. Continued transition of the tax system away from an indirect tax scheme to a more efficient system Source: India: A History, John Keay, Grove Press, 2000; www.wikipedia.org; Wikimedia Commons. based on a direct tax code (DTC) and a Goods and Services Tax (GST). Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley & Co. Research, “India and China: New Tigers of Asia, Part III,” August 13, 2010. 69 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 70. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Assessing India’s Economic Environment Emblem of Intermediate Term Accelerators and Hindrances Jammu and Kashmir Accelerators Hindrances• India’s economic development has been supported by several • While India has made headway in reducing poverty, India’s decades of persistent commitment to wide-ranging reforms still present wide income and wealth gaps could continue to and India has expressed its continued commitment to act as a drag on economic growth as those below the poverty structural reform, continuing the transition from a state- line struggle to save and make productive investments for owned to a market-driven economy themselves and for the economy• India has demonstrated prowess as a world-class exporter of • India’s large fiscal deficits limit the government’s ability to services, reflecting competitive strengths of the Indian increase investment as well as the level of productive private economy, including a large, educated, English-speaking investment workforce • The extent of corruption in India inhibits economic growth• India’s economy is in a position to benefit from continued as investment is deterred and misallocated, and trust in the improvement in demographics as the working age political system is eroded population increases and the dependency ratio declines, driving a higher savings rate • The current, inadequate state of India’s infrastructure, particularly in the energy and transport sectors, represents a• The process of urbanization is supporting India’s goal of significant constraint on Indian economic growth economic lifting millions out of poverty and into the middle class, growth if not upgraded which should drive increased consumption and investment in human capital • India’s level of non-performing assets (NPAs), particularly within the infrastructure sector, may discourage the banking• India has invested significant sums in large infrastructure system from providing the necessary funding for increased projects including roads, highways, port facilities, airports, infrastructure investment and telecommunications/internet resources • Ecological, environmental, natural resource management, and• As the largest democracy in the world, India experiences the health challenges remain, including India’s growing need for benefits of shared power, transparency, and adaptability that food, oil, coal, clean air, and clean water; such factors may accompany a democratic political system hold growth below India’s potential• Overseas Indians, along with Indian returnees who have a • As the largest democracy in the world, India also experiences strong desire to see India succeed, are making important the challenges associated with a democratic political system contributions to India’s economy and financial markets where achieving the necessary consensus to execute promises of reform can prove difficult in an environment of increasing political regionalization Source: Morgan Stanley Smith Barney Investment Strategy. 70 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 71. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Assessing India’s Economic Environment Emblem of Potential Risks – An Execution-Driven Story UttarakhandThe World Bank Ease of Doing • The Indian government has acknowledged the need for reform in such areas as infrastructure,Business Rankings - 2012 labor, education, foreign direct investment, and the capital markets, among others; however, itCountry Rank remains to be seen how well the government can execute these intentions through legislativeSingapore 1 means as well as the implementation processHong Kong 2New Zealand 3 • The increasing influence of regional political parties should make it more difficult toUnited States 4 continue pursuing a constructive and coherent reform agenda in an environment where coalitionDenmark 5Norway 6 governance is requiredUnited Kingdom 7Korea, Rep. 8 • The ongoing upgrades to India’s inadequate infrastructure carry a large amount of executionIceland 9 risk with any setbacks in building out the energy and transport sectors resulting in negativeIreland 10 implications for economic growthFinland 11Saudi Arabia 12 • Possible further delays in reforming India’s foreign direct investment policy, especially inCanada 13Sweden 14 the retail trade sector, will slow the transfer of foreign expertise and prevent India fromAustralia 15 realizing its growth potentialGeorgia 16Thailand 17 • India may continue to face delays in reforming its restrictive labor laws which constrain hiringMalaysia 18 and labor market flexibility.Germany 19Japan 20 • Stagnating levels of domestic savings and investment would leave the Indian economy withMexico 53 an insufficient supply of key growth capitalChina 91Pakistan 105 • Adverse legislation, such as retroactive taxation, could deter capital inflowsRussian Federation 120Brazil 126 • India needs to improve its education system and thus sufficiently prepare the large number ofIndonesia 129India 132 individuals set to enter the labor forceIndia placed 132nd out of 183 • India needs to provide enough employment opportunities for the large number ofcountries surveyed in The individuals entering the labor forceWorld Bank’s 2012 Ease ofDoing Business rankings. • Rising income inequality and high poverty levels in less-developed states could leadSource: Doing Business 2012, The World Bank. to social instability Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley & Co. Research, “India and China: New Tigers of Asia, Part III,” August 13, 2010. 71 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 72. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Bullish Factors Affecting India’s Economy and Markets Emblem of Himachal Pradesh Fundamental Factors• India’s key strengths and resources include its population profile and projected growth over the decades to 2050, its cultural and historical strengths and folkways, its rule of law and democratic processes and institutions, its abundant domestic and offshore supply of entrepreneurially oriented, hardworking businesspeople, and its geographical positioning in the proximate vicinity of other high-growth nations with similar strengths, agendas, and aspirations.• India’s economy is characterized by a healthy level of private consumption relative to GDP, a factor that will be key to ensuring the Indian economy avoids the “middle income trap” where some of the drivers that helped propel high growth such as low-cost labor and easy technology adoption begin to fade and growth slows, stalling middle income countries’ ascent toward becoming high income countries. India’s strong consumerism culture, the populist orientation of the government, and the large share of household income in GDP should contribute toward maintaining a healthy level of consumption relative to GDP.• Political empowerment of females in India compares favorably to the countries assessed in the World Economic Forum’s Global Gender Gap 2011 report, placing 19th out of 135 countries surveyed. While on a more granular level, India places lower on female political empowerment in parliament (98) and in ministerial positions (87), encouraging signs of female political empowerment exist on the local level, particularly in states such as Goa, where the state government has announced that women represent 50 percent of the council tasked with discussing the implementation of the Right to Education Act. Such developments are encouraging as a more representative political process makes more effective use of the total available human resources.• The Indian government is taking action to incentivize poorly run state-owned Indian coal companies to increase production by drafting new fuel supply contracts between power producers and state- owned coal companies such as Coal India. If the Indian government can find environmentally sensitive ways to increase coal production and consumption, India should be better able to effectively utilize this abundant domestic energy source which ranks as the 5th largest coal reserves in the world according to BP’s 2012 Statistical Review of World Energy. Increased coal production would lead to increased electricity generation and increased output from industry as companies would no longer have to cope with “power holidays.”• India is proactively addressing its energy needs with investments in alternative energy sources including wind and solar, with the 5th largest installed wind capacity and 16th largest installed solar capacity in the world, according to BP’s 2012 Statistical Review of World Energy. The National Solar Mission aims to expand the current solar capacity of 427MW to 20,000MW by 2020, 80% of the current capacity of the 2011 global solar leader, Germany. India’s solar capacity grew by approximately 165% from 2010 to 2011.• The Indian government has acknowledged the importance of upgrading and expanding the existing rail network to take advantage of the superior economics and environmental footprint of rail over road transport and has identified this goal as a top priority in the Twelfth Five-Year plan. The Dedicated Freight Corridor project has been initiated to create the needed rail freight capacity with an Eastern (Dankuni – Ludhiana) and Western (Mumbai – Delhi) corridor under construction and is scheduled to be completed by 2017. As of mid-2012, an additional four corridors were undergoing preliminary engineering analysis.• According to the Central Statistics Office, India’s Gross Domestic Savings has risen from 24.9% of GDP in FY2002 to 32.3% of GDP in FY2011, reflecting a significant rise in corporate savings from 3.3% of GDP in FY2002 to 7.9% of GDP in FY2011.• Levels of educational enrollment and attainment in India have been on the rise, as illustrated by the doubling of the number of young working-age (15-24) people who continued in educational institutions, from approximately 30 million in 2004-05 to over 60 million in 2009-10, as noted by the Planning Commission in their report, An Approach to the Twelfth Five Year Plan. Additionally, over the ten-year period from 2001 to 2011, the number of colleges in India increased from 12,806 to 33,023, according to the University Grants Commission. The Planning Commission also notes that while India has successfully expanded educational opportunities in recent years, a renewed emphasis on quality will be the focus of additional resources being allocated to education through the Twelfth Five Year Plan.• India’s absolute level of R&D spending in 2012 was forecasted to be $41.3 billion, the eighth highest amount of national R&D spending globally, according to Battelle’s 2012 Global R&D Funding Forecast. While India’s 2012 R&D spend was forecast to be considerably less than that of the US (#1 at $436.0 billion) and China (#2 at $198.9 billion), it compared favorably to other countries such as Brazil ($30.0 billion) and Russia ($26.9 billion). Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley & Co. Research; World Economic Forum; “The Role of the Middle Class in Economic Development: What Do Cross-Country Data Show?”, Asian Development Bank, January 2011; BP Global, BP Statistical Review of World Energy, June 2012; 2012 Global R&D Funding Forecast, Battelle, December 2011; Central Electricity Authority; Ministry of Coal; Ministry of Railways; Planning Commission; University Grants Commission; “India Struggles to Deliver Enough Power,” by Vikas Bajaj, New York Times, April 19, 2012; “In Solar Power, India Begins Living Up to Its Own Ambitions,” by Vikas Bajaj, New York Times, December 28, 2011. 72 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 73. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Bullish Factors Affecting India’s Economy and Markets Emblem of Tripura Fundamental Factors• The Indian Information Technology and Business Process Outsourcing industry (IT-BPO) has continued to build upon its global leadership position. According to the National Association of Software and Services Companies (NASSCOM), India increased its market share within the global sourcing industry from 51% in 2009 to 58% in 2011. The IT-BPO industry, an important driver of Indian economic growth, was expected to add 230,000 jobs in FY2012, increasing total direct employment to approximately 2.8 million and indirect employment to approximately 8.9 million. NASSCOM forecast that software and services revenues (excluding hardware) would grow 14.9% to $87.6 billion in FY2012. This sector was forecast to account for approximately 7.5% of GDP in FY2012, up from approximately 1.2% in FY1998.• The Indian Information Technology and Information Technology Enabled Services industry’s (IT-ITES) strong growth has also served as an example of the potential inherent within India’s corporate sector when restrictive labor laws are removed. From 2001 to mid-2011, a blanket exemption from the Industrial Employment (Standing Orders) Act (1946) was in effect for the IT-ITES industry. As of mid-2011, the exemption was granted on a case-by-case basis.• Beginning with the passage of the Special Economic Zone Act (2005), India has proactively developed SEZs across India, with 153 operational SEZs and 587 formally approved SEZs (approximately 61% of which are designated for the IT/ITES industry). Valuation Forces• As of August 2012, select valuation measures for the MSCI India Index compared favorably relative to the MSCI Asia Pacific Ex-Japan Index: – The consensus forecast for the MSCI India Index’s 2012 Earnings per Share (EPS) growth was 11.5% versus 4.9% for the MSCI Asia Pacific Ex-Japan Index. – The consensus forecast for the MSCI India Index’s 2013 Return on Equity (ROE) was 15.8% versus 13.1% for the MSCI Asia Pacific Ex-Japan Index. Psychological, Technical, and Liquidity Forces• On January 10, 2012, with immediate effect, the Government of India indicated that the Foreign Direct Investment (FDI) ownership limit in single-brand retail trading would be increased from 51% to 100%. The change in FDI policy encourages single-brand retailers, such as IKEA, to expand into India, bringing capital inflows and managerial, logistic, and marketing knowhow to India. In June 2012, IKEA announced plans to invest an initial €600 million in India, followed by an additional €900 million, to open 25 retail stores.• The Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) have introduced a number of reforms relating to Foreign Institutional Investors (FIIs) and Qualified Foreign Investors (QFIs) aimed at increasing capital flows into India and deepening Indian capital markets, such as: – A proposal, within the 2012-13 Union Budget, to allow QFIs to invest directly in Indian corporate debt, possibly up to $10 billion in aggregate investment; – Allowing QFIs to invest directly in Indian equities (Enacted January 13, 2012); – Allowing QFIs to invest directly in Indian mutual funds (Enacted August 9, 2011); – Raising the aggregate investment limit in government debt securities by FIIs from $15 billion to $20 billion (Enacted June 25, 2012); and – Raising the aggregate investment limit in corporate debt by FIIs from $15 billion to $20 billion (Enacted November 18, 2011). Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley & Co. Research; FactSet; MSCI; Ministry of Commerce and Industry; Reserve Bank of India; Securities and Exchange Board of India; Planning Commission; NASSCOM; “IT Industry Has to Adhere to Labour Laws Now,” by Bageshree S., The Hindu, March 10, 2012; “IKEA Plans to Invest €600 Million in India,” by Mukesh Jagota, The Wall Street Journal, June 22, 2012. 73 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 74. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Bearish Factors Affecting India’s Economy and Markets Emblem of Manipur Fundamental Factors• With a per-capita income of approximately $1,400 as of FY2011, India’s periodic decelerations in GDP growth raise significant obstacles to the country’s aspirations to address weaknesses in health, education, and defense spending; to generate jobs that attract and productively employ India’s rapidly growing youth cohort; to eradicate poverty within a generation; and to rank among the leading global powers.• In his 2011 Independence Day address on August 15, 2011, Prime Minister Manmohan Singh acknowledged that much work remains to be done in the areas of poverty, illiteracy, access to health services, and access to employment opportunities; PM Singh also highlighted the extent of corruption as a “deep concern” and a “big obstacle” in India’s path of transformation toward becoming a major global economic power.• Even though many of the solutions to India’s challenges are well known, Indian politics has experienced increasing regionalization as regional parties (such as the Mamata Banerjee-led Trinamool Congress) gain votes and influence, making it difficult to enact needed reforms in an environment of coalition governance. India’s policy relating to Foreign Direct Investment in the retail sector is one example of the difficulties that have been faced by PM Singh’s ruling Congress Party. Despite the desire of the Congress Party to allow 51% FDI in multi-brand retail, it faced stiff opposition from members of its governing coalition such as the Trinamool Congress Party. Political considerations have thus on occasion delayed the transfer of critical logistical expertise involved in multi- brand retailing which would reduce inefficiencies inherent in India’s retailing industry.• As of 2012, India ran a very high fiscal deficit (7.5%) relative to major emerging market economies. The need to reduce fiscal deficits to more sustainable levels limits the government’s ability to increase investment across India’s major areas of need, forcing the government to prioritize as it seeks to encourage economic growth.• With inflation in India still at elevated levels as of mid-2012, the Reserve Bank of India’s (RBI) flexibility to lower policy rates in an attempt to spur growth remained limited. The RBI has also noted that: (i) factors other than high interest rates have contributed significantly to the growth slowdown; and (ii) as of mid-2012, further policy rate reductions could exacerbate inflationary pressures rather than support growth. Morgan Stanley Research supports the RBI’s view that monetary policy does not represent an effective tool for spurring growth in India.• State-owned Indian coal companies have struggled to increase production, experiencing a 2.6% decrease in coal production for the nine months ended December 31, 2011 which is well short of the growth target of 3.9% set by the Ministry of Coal. These coal production shortfalls affect power producers as, according to the Central Electricity Authority (CEA), as of July 31, 2012, coal comprised 56.8% of the electricity generation capacity in India.• Power producers in India have struggled to meet consumer and industry demand for electricity, effectively preventing the Indian economy from achieving its growth potential. Despite building a number of new power plants to meet demand, producers have still been unable to keep pace as they have struggled to acquire enough fuel to power the new and existing plants. In July 2012, according to the Central Electricity Authority (CEA), the demand supply gap between electricity generation and demand was 9.1%, with the deficit in some regions as high as 12.5%.• State Electricity Boards (SEBs) incurred operating losses of Rs. 82,000 Crore (approximately $15.5 billion at the Dec. 30, 2011 FX rate) over the five year period from FY2006 to FY2010 as a result of selling electricity at fixed tariffs below market rates. In addition, the SEBs have suffered transmission and distribution (T&D) losses of over 30%. A significant portion (up to 70%) of these losses have been financed by loans from state-owned banks. A combination of poorly-run SEBs, tariff regulators failing to show independence in the discharge of their duties, and state governments with political sensitivities to tariff hikes have resulted in a misallocation of resources. According to the Planning Commission, under the current trajectory, operating losses were projected to reach approximately Rs.181,000 Crore (approximately $34.1 billion) over the seven years from FY2011 to FY2017.• India’s transportation infrastructure is sub-optimal as a Ministry of Railways report acknowledged that the share of freight that travels by rail needs to increase from approximately 35% to approximately 50% to take advantage of the better economics and environmental impact of rail versus roads. Challenged by under-capacity and slow speeds, India’s rail network is ill-equipped to handle the increasing volumes a growing Indian economy will demand. Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley & Co. Research; World Economic Forum; Central Electricity Authority; Ministry of Coal; Ministry of Railways; Planning Commission; “India Struggles to Deliver Enough Power,” by Vikas Bajaj, New York Times, April 19, 2012. 74 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 75. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Bearish Factors Affecting India’s Economy and Markets Emblem of Nagaland Fundamental Factors (Continued)• Regulatory, Legal, and Tax environments in India have not been conducive toward the formation and growth of businesses. According to the World Bank’s Doing Business 2012 report, India ranked 132nd out of the 183 countries included in the report, behind China (91), Russia (120), Brazil (126), and Indonesia (129). Additionally, India rates very low in regard to enforcing contracts (182), dealing with construction permits (181), starting a business (166), and paying taxes (147).• The stringency of employment regulations in India is high relative to the OECD average, particularly with respect to protections of permanent workers against individual dismissal, where India is rated to have the second most restrictive environment of all countries assessed by the OECD, with a score of 3.65 versus an OECD average of 2.09 on a 0 to 6 scale. Additionally, many of the employment protection regulations are only applicable to firms with 100 or more employees, resulting in the size distribution of businesses in India being heavily skewed toward smaller units. Such a distribution limits the opportunity to take advantage of economies of scale, curbing productivity and income gains.• India’s female labor force participation rate, at 29.0%, has been low relative to the global average of 51.1% and that of peers such as China (67.9%). According to the World Economic Forum’s Global Gender Gap 2011 report, India placed 131st out of 135 countries assessed with respect to female economic participation and opportunity. These data indicate that the Indian economy currently does not fully benefit from the total potential contribution of the female population.• For 2010, overall and female tertiary educational enrollment ratios at 17.9% and 14.9%, respectively, are low relative to the global averages of 29.2% and 30.3%, respectively, and peers such as China (25.9% and 27.2%, respectively). While India’s surging working-age population has the potential to produce large dividends for India’s economy, if the growing workforce is not properly educated, it could also result in social instability and diminished economic growth. These data also reflect and continue to highlight the underlying trend of female disenfranchisement in the economic and educational realms.• In a Hindu-majority nation, India needs to address the gaps in education, employment, and economic status faced by the country’s 177 million Muslims (number three in the world in population, as estimated by the Pew Research Center in 2010, behind number one Indonesia (205 million), and number two Pakistan (178 million), and ahead of number four Bangladesh (149 million)).• India’s spending on R&D as a percentage of GDP, projected to be 0.85% for 2012 according to Battelle’s 2012 Global R&D Funding Forecast, is low relative to the US (2.85%) and to peers such as China (1.60%), Brazil (1.10%), and Russia (1.03%).• India’s Business Process Outsourcing (BPO) and higher-end Knowledge Process Outsourcing (KPO) industries need to retain and increase their competitiveness relative to countries such as the Philippines, which recently overtook India as the largest “voice-related services” provider in the world. While India still overwhelmingly dominates the wide spectrum of the BPO and KPO industries, India needs to increase its cost/benefit profile relative to the Philippines, where workers with greater familiarity with the US are attractive to BPO/KPO customers.• India ranks last out of 132 countries surveyed in Yale University’s Environmental Performance Index with respect to air quality and its effects on human health. India scored a 3.73 out of 100, nearly ten points below the next closest country, Bangladesh (13.66), and nearly sixteen points below China (19.7). Such poor air quality creates negative effects on economic growth from lost productivity and unnecessary healthcare spending.• As of August 2012, India was in the midst of a drought with annual monsoon rains 70% below average in two Northern Indian States. While India is able to sufficiently deal with one-off droughts, any long term changes in the monsoon rains, the rainfall from June to September which accounts for approximately 75% of India’s annual rainfall, towards a less stable pattern where the monsoon rains would arrive later, yield less rainfall, and yield rainfall in shorter time spans would be a hindrance to an economy where approximately 70% of the population still lives in rural areas and approximately 600 million people still directly rely on farming. Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley & Co. Research; UNESCO; The World Bank; “Legislation, Collective Bargaining and Enforcement: Updating the OECD Protection Indicators,” OECD, 2009; “Labour Regulation and Employment Dynamics at the State Level in India,” OECD, 2008; The Future of the Global Muslim Population, Pew Research Center, January 2011; 2012 Global R&D Funding Forecast, Battelle, December 2011; 2012 Environmental Performance Index, Yale University; Confederation of Indian Industry; “At the front of the back office,” The Economist, June 23, 2012; “Monsoon, or Later,” The Economist, July 28, 2012. 75 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 76. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Bearish Factors Affecting India’s Economy and Markets Emblem of Goa Valuation Forces• As of August 2012, select valuation measures for the MSCI India Index compare unfavorably relative to the MSCI Asia Pacific Ex-Japan Index: – The total return compound annual growth rate for the five-year period from 2006 through 2011 for the MSCI India Index was 3.6% versus 4.1% for MSCI Asia Pacific Ex-Japan Index – As of mid-2012, the consensus forecast for the MSCI India Index’s 2012 Dividend Yield was 1.8% versus 3.6% for MSCI Asia Pacific Ex-Japan Index Psychological, Technical, and Liquidity Forces• According to the Confederation of Indian Industry’s 79th Business Outlook Survey, the Business Confidence Index (55.0 vs. 62.5), the Current Situation Index (51.9 vs. 62.6), and the Expectation Index (56.5 vs. 62.4) for the first quarter of FY2013 were all significantly lower than the prior year’s levels. Businesses also appeared concerned about stagnancy in the pace of reforms, high interest rates, and high raw material costs. Lastly, 78.5% of firms reported a stagnation or decline in the availability of credit during the three-month period from January through March 2012.• On April 25, 2012, S&P changed its outlook on India’s long-term debt from stable to negative and warned of a one-in three chance of a credit downgrade within the next 24 months from India’s then rating of BBB-, S&P’s lowest investment-grade rating. Catalysts that would make a downgrade likely include: slowing economic growth; a deteriorating external position; and a worsening political climate. S&P’s view was that a weak political environment represented the most significant drag on the economy as reforms, such as greater foreign participation in the retail sector and a restructuring of India’s system of subsidies, were in danger of not being carried out.• According to the Central Statistics Office, for the FY2012 India experienced an all-time high level for the current account deficit as a percentage of GDP of 4.2%. India represented the only country in the region running a current account (CA) deficit. Such a CA deficit leaves India exposed to funding risk via the capital flows necessary to fund the deficit, particularly due to the fact that over two- thirds of the deficit is funded by less-stable sources of capital such as commercial loans, trade credit, and portfolio equity and debt inflows. Any moves toward global risk aversion could result in a slowing of capital inflows which would lead to a wider balance of payments deficit exerting pressure on foreign exchange rates as well as on the domestic cost of capital. Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley & Co. Research; Central Statistics Office; FactSet; MSCI; Confederation of Indian Industry; “S&P Cuts India’s Outlook to Negative; No Need to Panic, Government Says,” The Times of India, April 25, 2012; “India Gets Downgrade Warning,” The Wall Street Journal, April 25, 2012. 76 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 77. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy India’s Economy in Context India Relative to BRICI Markets and Leading Developed MarketsThirty Largest Emerging Markets in 2011 The Five BRICI Markets in the Boxed Area Below Represent Approximately 20 Percent of the World’s GDP% of World GDP at Market Prices 2005 2011 2017E and 46 Percent of Its Population (1) 1 China 5.0 10.5 13.5 Real GDP, 2011 and 2017E, for Select Countries 2 Brazil 1.9 3.6 3.5 (In Billions of US Dollars) 3 Russia 1.7 2.7 3.3 4 India 1.8 2.4 3.1 18,000 (1) 5 Mexico 1.9 1.7 1.7 6 Indonesia 0.6 1.2 1.9 15,829 (1) 7 Turkey 1.1 1.1 1.3 8 Saudi Arabia 0.7 0.8 0.8 9 Poland 0.7 0.7 0.7 13,315 (1) 10 Iran 0.4 0.7 0.7 (1) 11 Argentina 0.4 0.6 0.6 12 (1) 0.5 0.6 0.6 12,000 South Africa (1) 13 United Arab Emirates 0.4 0.5 0.5 10,213 14 Thailand 0.4 0.5 0.6 (1) 15 Colombia 0.3 0.5 0.5 (1) 16 Venezuela 0.3 0.5 0.4 17 Malaysia 0.3 0.4 0.5 18 Chile 0.3 0.4 0.4 6,438 19 Nigeria 0.2 0.3 0.4 6,000 5,178 5,379 20 Egypt 0.2 0.3 0.4 21 Philippines 0.2 0.3 0.3 22 Pakistan 0.2 0.3 0.3 23 Algeria (1) 0.2 0.3 0.3 2,335 2,625 2,495 (1) 2,199 24 Romania 0.2 0.3 0.3 1,479 1,632 1,455 25 Kazakhstan 0.1 0.3 0.4 746 (1) 26 Kuwait 0.2 0.3 0.2 27 Qatar 0.1 0.2 0.3 0 28 Peru 0.2 0.2 0.3 (1) India(2) China Brazil (2) Russia Indonesia U.S. Japan 29 Ukraine 0.2 0.2 0.3 30 Hungary 0.2 0.2 0.2 Total 21.8 33.8 39.7 Emerging Markets 23.9 36.2 42.5 European Union 30.2 25.2 21.4 2011 US 27.7 21.7 21.0 Population (MM) 1,207 1,348 195 142 241 312 128 Japan 10.0 8.4 7.1 2011 GDP Per Capita ($) 1,156 4,505 10,642 10,813 2,920 40,266 38,213 Note: 1. 2011 figures represent estimates. 2011 2017E Note: Source: World Economic Outlook, International Monetary Fund, 1. For comparative purposes, GDP and GDP per capita are stated in 2005 US dollars (the US GDP deflator base year). April 2012. 2. For India and Brazil, the 2011 GDP per capita and population figures represent estimates. Source: World Economic Outlook, International Monetary Fund, April 2012.; The Economist Intelligence Unit; “The Internet’s New Billion,” The Boston Consulting Group, September 2010. 77 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 78. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy The India Landscape: Megatrends 1 Demographics 2 Education 3 Rise of Middle Class India’s total age dependency ratio is projected to The growth in the number of enrolled students India’s middle class is projected to grow into a continue to decline over the next thirty years. This in Indian higher educational institutions should powerful force, both economically and politically, improving dynamic presents an opportunity for translate into a better educated and more in the first quarter of the twenty-first century. The India to collect a “demographic dividend.” productive workforce. The Twelfth Five Year McKinsey Global Institute (MGI) estimates Such favorable demographics can fuel economic Plan (2012 – 2017) identifies education as one of that India’s middle class will grow over tenfold growth through a growing and more educated three areas that merits increased government during the twenty-year period from 2005 to labor force and higher savings rates as less money funds, recommending an increase of 1.5 2025. MGI forecasts that the middle class will is allocated to dependents. Research has percentage points of GDP. The Planning grow from 5 percent of the population, or 13 suggested that demographic dividends accounted Commission acknowledges that a strategic shift million households (50 million people), in 2005 for one-fourth to two-fifths of East Asia’s must take place from mere expansion to to 41 percent of the population, or 128 million “economic miracle.” improvement in higher education. households (583 million people), in 2025.India’s Favorable Age Dependency Ratio Outlook Studies by the Asian Development Bank have% suggested that the middle class possesses distinct100 Higher Educational Institution Enrollment Fiscal Year Ended March 31 values that make it a critical force in driving MM economic growth and political change. 90 20 80 India’s Middle Class Expansion MM 15 70 800 60 10 583 600 ~11.7x 50 400 5 40 200 0 50 30 51 61 71 81 91 01 11 0 50 60 70 80 90 00 10 20E 30E 40E 50E 2005 2025E India China G7 Total Enrollment Female Enrollment Source: “The ‘Bird of Gold’: The Rise of India’s Consumer Market,” McKinsey Source: University Grants Commission (India); Planning Commission. Global Institute, May 2007.Source: “UN World Population Prospects: 2010 Revision,” United Nations Population Division, May 3, 2011 Source: The Demographic Dividend: A New Perspective on the Economic Consequences of Population Change, Bloom, David E., David Canning, and Jaypee Sevilla, RAND Corporation, 2003; “The ‘Bird of Gold’: The Rise of India’s Consumer Market,” McKinsey Global Institute, May 2007; “The Role of the Middle Class in Economic Development: What Do Cross- Country Data Show?,” Asian Development Bank, January 2011; “Who are the Middle Class and What Values do They Hold?,” Asian Development Bank, October 2010. 78 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 79. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATIONInvestment Strategy The India Landscape: Megatrends4 Consumer 5 Urbanization 6 InfrastructureAs India’s middle class grows and incomes As India’s urbanization rate continues to approach India faces immense infrastructure needs and acorrespondingly rise, the purchasing power of the the current global average, cities will become an ever diverse array of voices has been calling for largeIndian consumer should grow as well. The larger driver of GDP. The McKinsey Global amounts of infrastructure investment goingMcKinsey Global Institute forecasts that by 2025, Institute (MGI) forecasts that India’s cities will forward, most notably, the Government of India’sIndia will become the fifth largest consumer account for approximately 70% of Indian GDP in Planning Commission, which, under its Twelfthmarket in the world. 2030, up from approximately 46% in 1990. MGI Five Year Plan, has called for $1.2 trillion in total also forecasts that India will have 68 cities with infrastructure spending over the five-year populations of more than 1 million, up from 42 in period from 2012 to 2017. Infrastructure has beenIndia’s Growing Consumer Appetite 2008.$US Billion, 2000 highlighted as one of three sectors of focus India’s Rate of Urbanization warranting an additional ~1.5 percentage points of2,000 Urban Population as % of Total Population 70 GDP. 1521 US in 19501,500 ~4.1x 60 US in 1900 Areas of focus include expanding India’s road and railway network to handle an increase in freight 501,000 transport as well as equipping ports to handle 746 US in 1850 40 larger ships. 370 30 500 The continuing urbanization of India and the need 20 to improve current service levels will place ever 0 10 increasing demands on urban infrastructure and 2005 2015E 2025E will merit large investments in existing and newSource: “The ‘Bird of Gold’: The Rise of India’s Consumer Market,” McKinsey 0 Global Institute, May 2007. urban infrastructure including: (i) water; (ii) 50 60 70 80 90 00 10 20E 30E 40E 50E Source: “UN World Urbanization Prospects: 2011 Revision”, United Nations sewerage; (iii) public transport; and (iv) low costIndia’s ability to maintain a healthy level of Population Division, April 5, 2012 housing.private consumption relative to GDP will be As India urbanizes, it will become easier to providecrucial to ensuring that the Indian economy avoids basic services to a larger subset of the population.the “middle income trap” where some of the Research has estimated that it is 30 to 50 percentfactors that helped propel high growth (such as cheaper to deliver basic services to concentratedlow-cost labor and easy technology adoption) populations compared to sparsely populatedbegin to fade and growth slows. populations. Such a dramatic shift in population from rural to urban India will place large demands on India’s Overcrowded Train on Mumbai Suburban Railway urban infrastructure. Source: Wikimedia Commons. Source: “The ‘Bird of Gold’: The Rise of India’s Consumer Market”, McKinsey Global Institute, May 2007; “India’s Urban Awakening: Building Inclusive Cities, Sustaining Economic Growth”, McKinsey Global Institute, April 2010; “The Role of the Middle Class in Economic Development: What Do Cross-Country Data Show?”, Asian Development Bank, January 2011; “Who are the Middle Class and What Values do They Hold?”, Asian Development Bank, October 2010; An Approach to the Twelfth Five Year Plan, Planning Commission. 79 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 80. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Demographic Trends in IndiaThe Fifteenth National Census• From April 2010 through September 2010 and in February 2011, the Office of the Registrar General & Census Commissioner (ORGCC) conducted the Fifteenth National Census. In March 2011, the ORGCC released provisional population results and in March 2012 released houselisting and housing results. The census reported that India’s population in 2011 was 1.21 billion, up from 1.03 billion in 2001. The average annual growth rate during the 2001-2011 time period was 1.64%, down from 1.97% during the 1991-2001 time period.• Among the findings of the Census were: – Urban population in 2011 surged by approximately 32%; however, while rural India only grew by approximately 12%, it still holds the majority of India’s population, accounting for approximately 69%. – The overall illiteracy ratio was 26.0% in 2011, down from 35.2% in 2001. In 2011, the illiteracy ratio was 17.8% among males and 34.5% among females. Lastly, in 2011, the illiteracy ratio was 15.0% in urban India and 31.1% in rural India. – People over 60 accounted for 13.3% of China’s population, compared to 10.3% in 2000. People under 14 accounted for 16.6% of China’s population in 2010, down from 23% in 2000. – In 2011, India had approximately 106 males for every 100 females, slightly lower than in 2001, when there were approximately 107 males for every 100 females. – In 2011, overall household ownership stood at 86.6%, with 94.7% ownership in rural India and 69.2% ownership in urban India.Unique Identification Authority of India (Aadhaar)• In January 2009, the Unique Identification Authority of India (UIDAI) was created and tasked with the mission to issue a unique 12-digit identification number, known as an Aadhaar, that can be verified and authenticated in an online and cost- effective manner, to each Indian citizen.• Enrollment, which reached 200 million in March of 2012, has been conducted through a combination of census workers and permanent enrollment centers across the country.• Potential benefits of the Aadhaar project include: – A single source for clear proof of identity which will enable the most vulnerable parts of the population who have no • Biometric data to be collected registered identity to more fully participate in social and financial services. through Aadhaar project: – “Anytime, anywhere, anyhow” authentication which will provide migrants mobility of identity. – Ten fingerprints – A reduction in corruption/leakage associated with social transfer payments (bribery and duplicate/false identities) as – Facial photos Aadhaar will facilitate direct deposit of social transfer payments to an individual’s bank account. – Double iris scans – A reduction in election fraud. Source: Census 2011, Office of the Registrar General & Census Commissioner; Unique Identification Authority of India; Morgan Stanley Smith Barney Investment Strategy. 80 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 81. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Demographic Trends in India India’s Population Pyramid Millions of Persons 1970 2010 2020E 100+ 100+ 100+ 90–94 90–94 90–94 80–84 80–84 80–84 Working Age 70–74 70–74 70–74 (15 – 64 y/o) 60–64 60–64 60–64 50–54 50–54 50–54 40–44 40–44 40–44 30–34 30–34 30–34 20–24 20–24 20–24 10–14 10–14 10–14 0–4 0–4 0–4 80 (60) 60 (40) 40 (20) 20 0 0 2020 40 40 60 80 60 80 (80) 60 (60) 40 (40) 20 (20) 0 0 20 20 40 40 60 60 80 80 80 (80) 60 (60) 40 (40) 20 (20) 0 0 20 20 40 40 60 60 80 80 Female MaleOn May 3, 2011, the United Nations Population Division released the “World Population Prospects, the 2010 Revision,” a report that forecasts globaldemographics through 2100. As illustrated above, the UN Population Division forecasts that India’s working age population as a share of the total population willgrow in the years ahead as the process of population aging begins to take hold, driven by increased life expectancy and falling fertility rates. The division estimatedthat India’s fertility rate from 2005 through 2010 was 2.73 and forecasted that India’s fertility would decline to 2.54 in the period from 2010 through 2015, finallybottoming in the period from 2065 through 2070 at 1.80. Demographers, economists, and policy experts have noted that such demographic trends could boosteconomic growth through 2020 and potentially beyond. Source: “UN World Population Prospects: 2010 Revision,” by the United Nations Population Division, May 3, 2011. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 81 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 82. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Labor Supply and Workforce Trends in India Working Age Population Growth Outpacing Total Resulting in a Larger Working Age Population as a • Over the 2011-2020 decade, India Population Growth… Percentage of the Overall Population has been forecasted by the UN to CY CY be the largest national contributor % Growth, 5-Yr Period % Growth, 5-Yr Period to the global workforce 16 1,800 70 14 1,600 • A growing workforce can be a 1,400 strong driver of economic growth 12 1,200 65 if: (i) the workforce is sufficiently 10 1,000 educated; and (ii) the workforce is 8 800 part of an economy positioned to 6 600 60 400 absorb a growing labor supply 4 200 • Healthy labor force participation 2 0 55 rates for both men and women are 80 90 00 10 20E 30E 40E 80 90 00 10 20E 30E 40E important factors in driving GDP Total Pop. Growth Working Age Pop. Growth Tot. Pop. Working Age Pop. % of Total per capita growth Source “UN World Population Prospects: 2010 Revision,” United Nations Population Source “UN World Population Prospects: 2010 Revision,” United Nations Population Division, May 3, 2011 Division, May 3, 2011India Forecasted to be Largest National Growing Labor Force is Increasingly Educated as Labor Force Suffers from a Low Female Labor ForceContributor to Global Workforce Gross Enrollment Ratios (GRE) Rise… Participation Rate (LFPR) Stock Position Addition to Working Age 2010E (Million) Population by 2020E (Million) CY CY % % World 4,525 507 (11%) 25 100 Africa 575 163 (28%) India 790 133 (17%) 20 S. E. Asia 398 52 (13%) 80Latin America 385 52 (13%) 15Western Asia 148 33 (22%) 60 China 971 18 (2%) 10 8% drop Indonesia 21 (13%) since 2005 162 40 USA 208 8 (4%) 5 Japan 81 (7) (-9%) 0 20 Europe 505 (20) (-4%) 80 84 88 92 96 00 04 08 90 92 94 96 98 00 02 04 06 08 10Sources “UN World Population Prospects: 2010 Revision,” by the United Nations Population Division, May 3, 2011; Tertiary GER, Female Tertiary GER, Male Total LFPR Male LFPR Female LFPR Morgan Stanley & Co. Research, “India and China: Source World Development Indicators, The World Bank, April 17, 2012 Source World Development Indicators, The World Bank, April 17, 2012 New Tigers of Asia, Part III,” August 13, 2010 Notes 1. The dependency ratio represents the number of dependents, i.e., children and the elderly, compared to the working-age population 82 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 83. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Education in India More Universities, More Students, Greater Participation • The number of universities, Strong Growth in the Number of Higher Education Increases in Tertiary Gross Enrollment Ratios(1) (GER) colleges, and enrolled students Institutions has been growing rapidly in India Fiscal Year Ended March 31 CY % • In order to capitalize on this trend, 800 40,000 25 students must be educated to a high standard 600 30,000 20 • The Planning Commission has 15 recommended an increase in 400 20,000 education spending of 1.5 10 percentage points of GDP and a 200 10,000 5 strategic shift from mere expansion to improvement in the 0 0 0 quality of higher education 51 61 71 81 91 01 11 80 84 88 92 96 00 04 08Source: Planning Commission. No. of Universities (lhs) No. of Colleges (rhs) Tertiary GER, Female Tertiary GER, Male Top Gross Enrollment Ratios (%) Source: University Grants Commission (India). Source: World Development Indicators, The World Bank, April 17, 2012.. (2) 2010, Sorted by Tertiary GER Country Tertiary Secondary Strong Growth in the Number of Students Enrolled in Indian Institutes of Technology (IIT) 1 Rep. of Korea 103.1 97.1 Higher Education Academic Excellence in India 2 Cuba 95.2 89.4 Fiscal Year Ended March 31 3 US 94.8 96.0 MM • Upon the recommendation of the Sarkar 4 Finland 93.7 107.5 18 Committee, the first IIT was established in 1950 16 in Kharagpur, on the site of a detention camp 5 Puerto Rico 86.0 82.2 6 Belarus 83.0 NA 14 • Through the Institutes of Technology Act (1961), IITs were formally recognized as “institutions IIT Kharagpur Seal 7 New Zealand 82.6 119.1 12 10 of national importance” 8 Australia 79.9 131.3 9 Ukraine 79.5 95.6 8 • As of 2012, sixteen IITs had been established 10 Norway 74.4 111.0 6 • IIT Delhi and IIT Bombay were ranked 43rd and 50th, 11 Lithuania 74.0 98.7 4 respectively, in Computer Science by the 2011 QS World 12 Sweden 73.8 99.2 2 University Rankings, with IIT Kanpur and IIT Madras also in 13 Barbados 65.9 100.6 0 the top 100 51 61 71 81 91 01 11 • Notable IIT alumni include N.R. Narayana Murthy (Co- 14 Macau (China) 64.9 92.4 15 Latvia 60.1 95.2 Total Enrollment Female Enrollment Founder of Infosys) and Vinod Khosla (Co-Founder of Sun 48 China 25.9 81.2 Microsystems) 57 India 17.9 63.2 Source: University Grants Commission (India). Source Wikipedia; Wikimedia Commons; QS, 2011 World Rankings University Rankings.Source: UNESCO Institute for Statistics. Note: 1. Gross Enrollment Ratio is defined as the ratio of persons in all age groups enrolled in various programs to the total population in the age group of 18 to 23. 2. International Standard Classification of Education (ISCED) levels 5 and 6. 83 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 84. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy India’s Rising Middle Class• Studies by The Asian India’s Shifting Income Pyramid Development Bank suggest that the growth of the middle class can India’s Economic Classes Indian Rupees, 2000 Number of Households (MM) be accelerated by policies that: (i) As Described By McKinsey Global Institute and the National (in thousands) Council of Applied Economic Research encourage private sector Globals (>1,000) 1.2 development; and (ii) promote • Deprived (less than 90,000 Indian rupees, less than $1,969): Strivers (500–1,000) 2.4 urbanization 2005E Typically earn livelihood by engaging in unskilled or low- Seekers (200–500) 10.9• Enabled by steady employment, skilled activities Aspirers (90–200) 91.3 the middle class represents a • Aspirers (90,000 – 200,000 Indian rupees, $1,969 - $4,376): major source of investment in Typically small-time shopkeepers, smallhold farmers, or low- Deprived (<90) 101.1 human capital, driving a virtuous skilled industrial and service workers cycle whereby a better educated • Seekers (200,000 – 500,000 Indian rupees, $4,376 - $10,941): Globals (>1,000) 3.3 workforce drives economic growth, Diverse group consisting of new college graduates, traditional Strivers (500–1,000) 5.5 2015F which, in turn, fosters a larger white-collar employees, mid-level government officials, and Seekers (200–500) 55.1 middle class that continues the medium-scale traders and businesspeople cycle with further investment Aspirers (90–200) 106.0 • Strivers (500,000 – 1,000,000 Indian rupees, $10,941 - Deprived (<90) 74.1• Studies have suggested that the $21,882): Typically very successful businesspeople, middle class tends to be the most established professionals, senior government officials, politically active income medium-scale industrialists in towns, and wealthy farmers in Globals (>1,000) 9.5 demographic as they begin to villages Strivers (500–1,000) 33.1 2025F focus on abstract concepts of • Global Indians (1,000,000+ Indian rupees, $21,882+): Seekers (200–500) 94.9 governance such as freedom of Senior corporate executives, large business owners, large Aspirers (90–200) 93.1 speech, corruption, and fair agricultural-land owners, top-tier professionals, and Deprived (<90) 49.9 elections, rather than solely on increasingly, mid-level executives and graduates from India’s survival top colleges Middle Class• The middle class also tends to Source: “The ‘Bird of Gold’: The Rise of India’s Consumer Market,” McKinsey Global Institute, May 2007. have progressive views on values that contribute toward economic The Middle Class Rises Up Against Corruption growth, such as market competition and gender equity Kisan “Anna” (Elder Brother in English) Hazara (June 15, 1937 - )• Importantly, the rising middle class • Originally gaining recognition for turning around his ancestral village of Ralegan Siddhi, which was plagued by has a vital role to play as a drought and alcoholism, Anna Hazara has become the face of the anti-corruption movement in India, keeping consumer highly publicized fasts which have drawn tens of thousands of supporters, consisting largely of the urban middleSource: “The Role of the Middle Class in Economic class, to the streets to support his call for a Lokpal Bill, which is still in the legislative process Development: What Do Cross-Country Data Show?,” Asian Development Bank, January 2011; “Who are • “Team Anna” has called for a Lokpal, a national anti-corruption institution, which has the power to both investigate the Middle Class and What Values do They Hold?,” and prosecute corruption within the government Asian Development Bank, October 2010. Source: Wikimedia Commons. Source: “A Gandhi Model Galvanized India,” by Amol Sharma and Krishna Pokharel, The Wall Street Journal, August 23, 2011; “Lokpal Bill Draft Gets Cabinet Nod; Team Anna, Opposition Reject it,” The Times of India, December 21, 2011. 84 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 85. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Increasing Power of the Indian Consumer• India is a middle income country Indian Rupees, 2000 Aggregate Consumption (Tn) India’s Evolving Spending Patterns (2) with a Gross National Income 000s Share of Average Household Consumption (GNI) per capita of $1,414 in % Globals (>1,000) 1.2 FY2012 as defined by the World 100% Bank (GNI per capita between Strivers (500–1,000) 1.0 7% 2005E 9% 13% Health Care ~$1,000 and ~$12,000) Seekers (200–500) 2.1 5% 6% 2%• India’s consumption basket Aspirers (90–200) 8.5 3% 9% Education and Recreation continues to evolve toward higher Deprived (<90) 17% 4.1 75% 6% Communication 19% discretionary spending 8%• India’s continued strong Globals (>1,000) 4.1 3% 9% 20% Transportation consumption as a percentage of Strivers (500–1,000) 2.7 12% 3% 2015F Personal Products GDP represents a significant driver Seekers (200–500) 11.8 50% 11% and Services 6% 12% of Indias efforts to avoid the 3% Household Products Aspirers (90–200) 12.2 “middle income trap” and transition 5% 10% Housing and Utilities from a middle income country to a Deprived (<90) 3.3 42% 5% Apparel high income country 25% 34% Globals (>1,000) 14.1 2010 US Level of Necessities Food, Beverage, 25% and Tobacco Strivers (500–1,000) 16.5 Spending 2025F Seekers (200–500) 24.6 0% India’s Consumption(1) in Context Aspirers (90–200) 11.9 2005E 2015F 2025F Per Capita % of GDP (Real 2000 $US) Deprived (<90) Necessities Discretionary Spend 2.4 US 26,778 Middle Class Brazil 3,122 Source: “The ‘Bird of Gold’: The Rise of India’s Consumer Market,” McKinsey Global Institute, May 2007; US Bureau of Labor Statistics. Japan 22,372Euro Area 12,101 Reaching Indian Consumers India 471 • While the urban Indian consumer has greater spending power than the rural Indian consumer, IndiaIndonesia 647 still remains a country where nearly 70% of the population (approximately 850 million people) live in rural areas, a group which the McKinsey Global Institute forecasts will represent approximately Russia 1,870 a $577 billion consumer market in 2025, up from approximately $212 billion in 2005; however, China 853 reaching all these consumers spread amongst approximately 640,000 villages presents a challenging task 0 20 40 60 80 100 • Hindustan Unilever (HUL) has pioneered a successful program, called Project Shakti, whereby Source: The World Bank. over 45,000 local women, known as Shakti Amma (Empowered Mothers), act as saleswomen for HUL consumer goods within their village Source Census 2011; “Mother of All Rural Marketing Schemes,” by Samanth Subramanian, Mint, March 24, 2009; The ‘Bird of Gold’: The Rise of India’s Consumer Market,” McKinsey Global Institute, May 2007. Note: 1. Consumption is defined as 2010 household final consumption expenditure. 2. Data are rounded to the nearest integer and may not add up to 100%. 85 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 86. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Increasing Urbanization Rates in India • India’s level of urbanization places India’s Urbanization Rate in Context India’s Continuing Urbanization 194th out of the 231 2010 CY countries/areas surveyed by the % % United Nation’s World Singapore 100 100 92 Urbanization Prospects report Argentina Japan 91 80 • As India follows the path to a Brazil 84 higher level of urbanization, it US 82 60 Russia 74 should benefit from: (i) cheaper Italy 68 40 delivery of basic services; and (ii) Indonesia 50 China 49 productivity-boosting scale benefits 20 India 31 associated with a higher density of Vietnam 30 0 Sri Lanka 15 businesses, jobs, and human and 50 60 70 80 90 00 10 20E 30E 40E 50E entrepreneurial resources 0 20 40 60 80 100 India US China World • India is projected to be the largest contributor to the global urban population from 2000 to 2050 with The Majority of India’s Urban Population Increase India’s Megacities an increase in its urban population is Projected to Come from Urban Growth Cities with Populations Greater than 10 Million (Population in Millions) of approximately 584 million Change in Urban Population from 2000 to 2050 people MM 2011 2025E • Such dramatic urban growth will India 30% 70% place a large strain on India’s China 2% 98% • Delhi 22.7 • Delhi 32.9 Nigeria 50% 50% existing urban infrastructure and • Mumbai 19.7 • Mumbai 26.6 US 71% 29% will require significant investment Indonesia 28% 72% • Kolkata 14.4 • Kolkata 18.7 in additional urban infrastructure Pakistan 41% 59% • Bangalore 13.2 Bangladesh 22% 78% • ChennaiSource: “UN World Urbanization Prospects: 2011 Revision,” 12.8 United Nations Population Division, April 5, 2012 DR Congo 41%59% Philippines 58% 42% • Hyderabad 11.6 Tanzania 38%62% 0 100 200 300 400 500 600 • In 2025, the UN forecasts that India will have six Contrib. from Overall Pop. Growth Contrib. from Urban Growth megacities, second in the world only to China, with seven Source: “UN World Urbanization Prospects: 2011 Revision,” United Nations Population Division, April 5, 2012 86 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 87. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy India’s Investment in Infrastructure• The Government of India’s Planning National Institute of Urban Affairs’ Projections of Required Urban Infrastructure Spending, 2012 – 2030E Commission called for $1.2 trillion in total infrastructure spending Infrastructure Assets Requiring the Most Funding Cities Requiring the Most Funding over the five-year period from 2012 to 2017 Total Investment(1): $584 Billion Total Investment(1): $584 Billion Allocation of Funds for Cities, Grouped by Population• The McKinsey Global Institute Storm Water Other 50,000 - 100,000 projected that over the period from Drains 5% 6% 6% Less Than 20,000 100,000 - 1 million 2010 to 2030, India would need $1.2 7% 29% trillion in urban infrastructure capital Sewerage expenditures, with every year the 8% 20,000 - 50,000 need to build: (i) 700 to 900 million 9% Water Supply square meters of residential and 10% Urban Roads commercial space; (ii) 350 to 400 56% 1 - 5 million kilometers of metros and subways; Urban Transport 22% Greater Than 5 million and (iii) 19,000 to 25,000 kilometers 15% 28% of road lanes Source: Report on Indian Urban Infrastructure and Services, National Institute of Urban Affairs. Jawaharlal Nehru National Urban Renewal Mission (JNNURM) Public-Private Partnerships (PPPs) • Launched in December 2005, the Jawaharlal Nehru National Urban Renewal • Public-Private Partnerships (PPPs) are arrangements whereby the private sector provides infrastructure Mission (JNNURM) was created as part of an effort to modernize India’s assets and services that traditionally have been provided by the government with the expectation of urban infrastructure by encouraging reforms and fast-tracking development improving the efficiency of infrastructure service delivery and mitigating time and cost overruns in in select cities construction relative to traditional public procurement • The National Institute of Urban Affairs has recommended a follow-up • PPPs are expected to play a significant role in the large amounts of infrastructure investment mission to JNNURM called the New Improved JNNURM (NIJNNURM) required by India, with the Planning Commission forecasting that up to 50% of total with key changes as follows: infrastructure investment will need to come from such sources, up from approximately 30% during – Duration of 20 years, up from 7 years the eleventh five year plan (2007 – 2012) – Funding at a level of 0.25% of GDP, up from 0.10% of GDP • In late 2011, the Central government released a draft of a national PPP policy in an effort to create a standard framework for states to utilize when pursuing a PPP initiative and to encourage the use of – Available to all cities, an expansion from the original 65 cities PPPs going forward – Emphasis on building capacity of Urban Local Bodies (ULBs) • According to the World Bank’s Private Participation in Infrastructure Project Database, over the period from 1990 to 2011, India has launched the 2nd highest number of PPP projects and invested the 2nd largest amount of funds via PPPs Source: Report on Indian Urban Infrastructure and Services, National Institute of Urban Affairs. Source: Report on Indian Urban Infrastructure and Services, National Institute of Urban Affairs; OECD; Planning Commission. Note: 1. At 2009-10 prices; converted using foreign exchange rates on December 31, 2011. 87 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 88. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy India’s Gross Domestic Savings as a Percentage of GDP Emblem of MeghalayaFinancial Inclusion Gross Domestic Savings as a Percentage of GDP FY1985 – FY2013E• Defined as access to appropriate financial products and services % needed by vulnerable groups at an 40 affordable cost, in a fair and Gross Domestic Savings transparent manner by 35 Gross Domestic Savings is the sum of private mainstream institutional entities and public savings and is equal to a nation’s• The Reserve Bank of India has income (Gross Domestic Product) less the been pursuing a variety of sum of public and private consumption 30 expenditures. strategies to further financial inclusion in a country where Source: The World Bank. approximately 40% of rural 25 residents do not have access to bank accounts – New Products: Gross Domestic Product 20 – No-frill bank accounts with Gross Domestic Product (GDP) is a measure very low minimum balances and of a country’s or region’s total output of goods and services for final use occurring within its built-in overdraft facilities 15 domestic territory, regardless of the allocation – Regulatory Measures: to domestic and foreign claims. – Relaxed Know-Your-Customer 10 Source: The World Bank. requirements for opening an account and an expanded universe of eligible 5 intermediaries able to provide financial and banking services – Supportive Measures: 0 – Funds such as the Financial 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13e Inclusion Fund and the Financial Inclusion Technology Fund to (5) subsidize developmental, promotional, and technology Total Gross Domestic Savings Household Savings Private Corporate Savings Public Savings costs Source: Central Statistics Office; Morgan Stanley & Co. Research. Data are as of March 31, 2012. Estimates are as of September 2012.Source: Reserve Bank of India. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 88 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 89. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy India’s Gross Capital Formation as a Percentage of GDP Gross Capital Formation (GCF) as a Percentage of GDP The Non-Aligned Movement FY1985 – FY2013E %• During a 1954 speech in 40 Colombo, Sri Lanka, Jawaharlal Gross Capital Formation Nehru, then Prime Minister of India, championed the concept of For a given unit or sector, Gross Capital “non-alignment,” a concept that 35 Formation (GCF) is measured by: (i) the centered around a third bloc of total value of gross fixed capital nations with the ability to resist formation(1); (ii) changes in inventories; the overtures of the West and the 30 and (iii) acquisitions less disposals of Soviet Union valuables. Source: OECD.• Nehru envisioned a Non-Aligned Movement rooted in the five 25 principles conceived by Chinese Premier Zhou Enlai in respect to Sino-Indian relations 20• Known as the panchsheel (“restraints”), the five principles included: 15 – Mutual respect for each other’s territorial integrity and sovereignty 10 – Mutual non-aggression – Non-interference in each other’s internal affairs 5 – Equality and mutual benefit – Peaceful co-existence 0Source: India: A History, John Keay, Grove Press, 2000; 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13e“Non-alignment was coined by Nehru in 1954,” TheTimes of India, September 18, 2006. Total Gross Capital Formation Household GCF Private Corporate GCF Public GCF Note: 1. Gross Fixed Capital Formation is measured by the total value of a producer’s acquisitions, less disposals, of fixed assets during the accounting period plus certain additions to the value of non-produced assets (such as subsoil assets or major improvements in the quantity, quality, or productivity of land) realized by the productive activity of institutional units. Source: Central Statistics Office; OECD; Morgan Stanley & Co. Research. Data are as of March 31, 2012. Estimates are as of September 2012. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 89 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 90. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy India’s Current Account Balance as a Percentage of GDP• In a concerted effort to fuel growth, Current Account Balance as a Percentage of GDP India has historically maintained a FY1980 – FY2013E current account deficit in order to % Post Credit Crisis 3 40 support a higher level of investment (gross capital formation) than what could be supported by gross domestic 2 35 savings alone• After India’s balance of payments 1 (BoP) crisis in 1991, policymakers 30 have conservatively managed the current account deficit, keeping it 0 in a range between -0.5% and -2.0% of GDP 25• In the years following the global (1) credit crisis of 2008, India’s current account balance trajectory has 20 weakened as savings have (2) declined at a quicker rate than investment Balance of Payments 15 – Public saving has declined from (3) Crisis of 1991 5.0% of GDP in FY2008 to 1.7% of GDP in FY2011 while public An all-time high 10 investment has only fallen from (4) Current Account deficit 8.9% of GDP in FY2008 to 8.8% of 4.2% for 2012 of GDP in FY2011 (5) 5 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13eSource: Morgan Stanley & Co. Research, “India Economics: Risk of Balance of Payments Shock Remains High,” May 2, 2012. Current Account Balance (LS) Gross Domestic Savings (RS) Gross Capital Formation (RS) Source: Central Statistics Office; Morgan Stanley & Co. Research, “India Economics: Risk of Balance of Payments Shock Remains High”, May 2, 2012. Research. Data are as of March 31, 2012. Estimates are as of September 2012. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 90 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 91. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy India’s Lingering Fiscal Deficit• Prior to the credit crisis of 2008, India’s Consolidated Fiscal Deficit as a Percentage of GDP the Indian government was in the FY1985 – 2014E process of reducing its fiscal deficit % 15 to a more manageable level 9.5 8.8 9.1 8.7 9.2 8.6 7.7 8.2 8.6 9.2 9.6 9.3 9.4• In the period immediately following 10 6.8 6.8 8.0 6.9 7.0 8.3 8.3 8.1 8.7 8.7 8.1 6.3 6.1 7.2 the credit crisis of 2008, the Indian 6.5 5.4 government maintained an 5 4.0 elevated fiscal deficit in an effort to minimize the effects of a global 0 slowdown on the Indian economy (5)• A major driver in the increase of 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12e 13e 14e the deficit reflected transfers to Central State Inter-governemental Adjustments households, boosting consumption Source Central Statistics Office; Reserve Bank of India; Morgan Stanley & Co. Research. Data are as of March 31, 2011. Estimates are as of September 2012.• As this expansionary policy was maintained during the 2009 through 2012 years, government Challenging Growth Mix: Elevated Fiscal Deficit, Government Expenditures Biased Towards spending and investment grew Falling Corporate Capital Expenditure Revenue Spending FY2000 – 2013E FY2000 – 2013E relative to corporate investment Percentage of GDP @ Market Prices Percentage of Total Central Government Expenditures• Government expenditures, which 12 20 100 16 15 17 18 10 11 13 12 17 13 12 14 are biased toward revenue 11 18 23 23 10 16 80 spending, tend to be less efficient 9 14 60 than corporate investment as the 8 12 impact of revenue spending 7 10 40 84 85 83 82 77 77 87 88 83 90 89 87 88 86 (specifically social services and 6 8 20 subsidies) is mitigated by leakage 5 6 and the return on capital spending 4 4 0 is limited by low capital productivity 00 01 02 03 04 05 06 07 08 09 10 11 12 13e 00 01 02 03 04 05 06 07 08 09 10 11 12 13e Consolidated Corporate Revenue Spending Capital Spending Fiscal Deficit (lhs) Capex (GCF) (rhs)Source: Morgan Stanley & Co. Research, “India Economics: Risk of Balance of Payments Shock Remains High,” Source: Central Statistics Office; Reserve Bank of India; Morgan Stanley & Source Central Statistics Office; Reserve Bank of India; Morgan Stanley & Co. May 2, 2012. Co. Research, “Stagflation-Type Environment to Continue For A Research, “Stagflation-Type Environment to Continue For A While Longer,” While Longer,” August 10, 2012. Data are as of March 31, 2012. August 10, 2012. Data are as of March 31, 2012. Estimates are as of August Estimates are as of September 2012. 2012. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 91 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 92. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Internet Usage and E-commerce in India Emblem of India Relative to BRICI Markets and Leading Developed Markets Arunachal Pradesh• Internet usage in India grew over 70x, Internet Users in the Five BRICI Countries Have Been Projected to More Than Double to 1.2 Billion by 2015 (1) from 1.4 million users in 1998 to 100 Number of Internet Users, 2009–2015E, for Select Countries million users in 2010 Millions• The size of the e-commerce industry in 750 India was about $10 billion (only approximately $1.6 billion of which was 650 non-travel spending) in 2011, compared to total domestic retail sales 600 of $422 billion• To encourage increased online spending, many e-commerce sites have focused on offering low prices 450 and facilitating purchases with terms such as cash on delivery and free 384 shipping• The e-commerce market in India was 300 projected to grow at a compound 237 238 annual growth rate of 57% from 2012 211 223 through 2016, reaching $8.8 billion, according to Forrester Research 155 137 150• Amazon, the world’s largest online 81 76 94 88 93 101 retailer as of mid-2012, entered the 68 Indian e-commerce market in February 49 36 44 26 20 31 2012 with the launch of Junglee.com, a comparison shopping site 0• The government-planned transition to China India Brazil Russia Indonesia U.S. Japan a Goods and Services Tax (GST) would benefit e-commerce as streamlined tax structures across 2009 states would enable more cost- Penetration (%) 28 7 33 31 12 70 74 effective supply chains 2015E Penetration (%) 47 19 74 55 37 73 81Source: “Sell Now, Pay Later,“ The Economist, April 25, 2012; www.internetworldstats.com; “India Retail Report Q1 2012,” BMI; “Asia Pacific Online Retail Forecast, 2011 2006 2009 2015E To 2016,” Forrester Research, April 16, 2012; “Junglee: Amazon Makes Quiet Entry into Indian Note: Retail Market Via Comparison Shopping Site,” The 1. An Internet user is defined as someone aged two years or older who went online within the previous 30 days; penetration represents the number of Internet users divided by the population. Economic Times, March 16, 2012; “Budget 2012: GST Boost for Indian E-commerce,” The Economic Times, Source: Ministry of Industry and Information Technology; iResearch; Internet World Stats; Economist Intelligence Unit; “The Internet’s New Billion,” The Boston Consulting Group, September March 16, 2012. 2010. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 92 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 93. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Pakistan – A Brief Economic Overview Overview Map of Pakistan • 2011 Population: 190.3 millionPakistan Real GDP Growth • 2009 Main Cities and Populations: Karachi (13.1 million), Lahore (7.1 million),Fiscal Year Ended June 30 Faisalabad (2.8 million), Rawalpindi (2.0 million), Islamabad (0.8 million) • 2011 GDP per Capita: $1,194 (Current US dollars)Year-over-Year % Change • Exchange Rate: Managed Floating; US$1.00= PKR 89.96 (as of Dec. 30, 2011)10 8 • After achieving above-average economic growth through the 1980s during a period characterized by reform efforts and economic and political stability, 6 Pakistan experienced weak economic growth during the 1990s amidst an environment of stalled reform, domestic and regional political tensions, and challenging debt dynamics 4 • Pakistan’s economy was significantly adversely affected by the global slowdown in 2008; faced with a deteriorating external position, Pakistan’s 2 economy was approaching a balance of payments crisis when the country arranged an $11.3 billion loan from the International Monetary Fund (IMF) 0 • Widespread flooding in mid-2010, which the United Nations estimated to 00 01 02 03 04 05 06 07 08 09 10 11 have covered one-fifth of Pakistan, led to disruptions in economic activity Source: Pakistan Bureau of Statistics. • Recurring low levels of revenue mobilization (Tax-to-GDP ratio of Source: Wikimedia Commons. approximately 10%, among the lowest in the world), leave Pakistan’s government lacking the resources necessary to spur economic growthPakistan GDP by Sector Pakistan: Economic Summary • Low and falling levels of investment, approximately 13% of GDP in 2011 $US Billion, unless otherwise indicatedFor Fiscal Year Ended June 30, 2011 compared to approximately 35% in India, restrain economic growth Agriculture • Beset by large transmission and distribution losses and non-paying Fiscal Year Ended June 30 2007 2008 2009 2010 2011 22% customers, Pakistan’s power sector struggles to provide a constant supply of Nominal GDP 143.2 163.9 161.8 176.9 211.1 electricity; shortages of natural gas also deprive Pakistan’s economy of the Exports 22.0 25.5 22.3 28.1 energy needed to fuel economic growth Imports 37.6 47.9 35.2 40.0 Current Acct. Balance • In the Pakistan Planning Commission’s July 2012 “Framework for (% of GDP) (5.8) (9.6) (2.5) (0.8) Services Economic Growth” report, Dr Nadeem Ul Haque suggested that Pakistan Foreign Direct Investment 5.6 5.4 2.3 2.0 53% primarily suffered from a “software” problem, including issues of economic Foreign Currency Rsrvs 4.4 2.0 4.1 4.7 Industry governance, weak institutions, and poor incentives, as opposed to primarily (as no. of months imports) 25% a “hardware” problem of inadequate physical infrastructure External Debt 28.5 29.3 32.8 31.3 • The 2003 privatization of the telecommunications sector and the ensuing (% of GNI) Source: The World Bank. Fiscal Deficit dramatic reductions in tariffs illustrate the potential of the private sector in (4.2) (7.4) (4.8) (5.0) (% of GDP) Pakistan Inflation Rate (%) 7.8 10.8 17.6 10.1 13.7 Source: The World Bank; Framework for Economic Growth, Planning Commission, July 2011; Source: The World Bank; World Economic Outlook, International Bloomberg, LLC; “Pakistan Ends IMF Loan Deal Amid Dispute,” by James Lamont, The Monetary Fund, April 2012. Financial Times, October 31, 2011; “Lights Off,” The Economist, February 11, 2012. 93 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 94. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy Bangladesh – A Brief Economic Overview Overview Map of Bangladesh • 2011 Population: 161.1 millionBangladesh Real GDP Growth • 2009 Main Cities and Populations: Dhaka (14.3 million), Chittagong (4.8 million),Fiscal Year Ended June 30 Khulna (1.6 million), Rajshahi (0.9 million) • 2011 GDP per Capita: $735 (Current US dollars)Year-over-Year % Change • Exchange Rate: Managed Floating; US$1.00= BDT 81.83 (as of Dec. 30, 2011)10 8 • Bangladesh initiated moves toward a market-based economy in the mid- 1970s and, beginning in 1990, toward the liberalization of trade policy; an increase in private sector production and investment, supported by the 6 inflow of remittances, put the economy on a higher growth trajectory • Enabled by the trade liberalization reforms of the 1990s, Bangladesh’s 4 garment industry has been a significant driver of economic growth, growing at a compound annual growth rate of 7.3% from 1996 through 2000, and in 2 2011, accounted for 78% (approximately $18 billion) of total exports • In 2009, Bangladesh was the 2nd largest garment exporter (4.3% global 0 market share) in the world behind China (31.7% global market share) 03 04 05 06 07 08 09 10 • As one of the most densely populated countries in the world, land Source: Bangladesh Bureau of Statistics. constraints represent an obstacle toward more rapid and sustained economic Source: Wikimedia Commons. growth • According to The World Bank, Bangladesh’s infrastructure deficit,Bangladesh GDP by Sector specifically energy supply uncertainties, pose as much of a risk to growth as Bangladesh: Economic Summary global factors such as slowing export markets, remittances, and aid inflows $US Billion, unless otherwise indicatedFor Fiscal Year Ended June 30, 2011 • While Bangladesh experienced a high level of private investment, 19.5% in Agriculture 2011, gross fixed capital formation (24.7%) still lags behind India (29.5%) Fiscal Year Ended June 30 2007 2008 2009 2010 2011 18% • Historically, Bangladesh has experienced low levels of Foreign Direct Nominal GDP 68.4 79.6 89.4 100.4 110.6 Exports 14.1 17.5 17.0 21.7 27.2 Investment (FDI); allegations of corruption by The World Bank and Imports 19.6 25.2 23.1 29.5 37.8 episodes of labor unrest within the garment industry may hinder the inflow Current Acct. Balance of FDI. (% of GDP) 1.3 1.2 4.0 2.1 0.2 Services • Increased domestic borrowing by the government to finance a growing Foreign Direct Investment 0.7 1.0 0.7 0.9 0.8 53% fiscal deficit represents a potential drag on economic growth, with risks of Foreign Currency Rsrvs Industry “crowding out” credit potentially raised by the private sector (as no. of months imports) 3.0 2.6 5.1 4.3 2.8 29% • The Bangladesh Planning Commission, in its Sixth Five Year Plan, External Debt 29.0 26.4 24.4 22.8 highlighted the need for improvements in infrastructure (power and (% of GNI) Source: The World Bank. transport), for increases in total factor productivity, and for the continuing Fiscal Deficit (1.3) (1.0) (1.7) need to evolve toward a sectoral composition of growth with an increasing (% of GDP) share of modern manufacturing and organized services Inflation Rate (%) 7.2 9.9 6.7 7.3 8.8 Source: “Consolidating and Accelerating Exports in Bangladesh,” The World Bank, June 2012; Source: The World Bank; World Economic Outlook, International “Bangladesh Economic Update,” The World Bank, May 2012; Bangladesh Sixth Five Year Plan, Monetary Fund, April 2012. Planning Commission, September 2010; Bloomberg, LLC. 94 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 95. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATIONInvestment Strategy India and China: A Critical Global Relationship Against a backdrop from centuries ago of rich cultural exchanges ranging from the study of eclipses to Buddhist religious ceremonies, the sometimes harmonious, sometimes contentious India-China relationship in the twenty-first century has significant potential for the expansion of bilateral trade, financial flows, cross-border research and development, foreign direct investment activity, and global advancement. History and Current Relations • As neighboring nations with immense populations, multi-thousand year-old cultures, and competing claims over disputed territory, China and India have growing trade ties, with US$63 billion in bilateral trade in FY2011 ended March 31, up from only US$270 million in 1990. • China and India fought a border war in 1962 and have not resolved their territorial disputes in Tibet and Kashmir, even though diplomatic ties were reestablished in 1976. • India shelters thousands of Tibetan refugees, and the 14th Dali Lama has lived in Dharamsala, located in northern India, from 1959 onward. • China has at times had close military ties with Pakistan. • Over a period of years, China and India have conducted a series of at times cordial but inconclusive border negotiations, which were in their 15th round as of January 2012. • In September 2012, China and India agreed to resume joint military exercises that were frozen in 2010 and conduct joint maritime search-and-rescue exercises. • A significantly contentious issue between China and India has been control of water resources, and inter-basin and inter-river water transfer projects; the Tibetan plateau is the origin of several major rivers in Asia, including the Yangtze, Yellow, Indus, Mekong, Brahmaputra (known in China as the Yalong Tsangpo, or the Yaluzangbu), and other rivers, all of which provide water to China, India, Bangladesh, Bhutan, Cambodia, Laos, Myanmar, Nepal, Pakistan, Thailand, and Vietnam. • Primarily in the Arunachal Pradesh region of the Himalayas, China asserts claims to 90,000 square kilometers (55,923 square miles), over which India also claims ownership. In 2006, China’s ambassador to India declared that the entire state of Arunachal Pradesh is in Chinese territory. • For the Yalong Tsangpo (Brahmaputra River), China has proposed, not without contention, dispute, and controversy: – (i) Constructing a canal to divert part of the river northward to supply water into arid regions, which account for 50% of China’s total landmass but which have less than 10% of China’s water resources; and – (ii) Building a 40,000 Megawatt hydroelectric dam on the so-called “Great Bend” of the river. If built, the dam would be the largest hydroelectric dam in the world, with over twice the capacity of the Three Gorges Dam, which is located in the Hubei Province of China and was the largest dam in the world as of August 2012. Source: Morgan Stanley Smith Barney Investment Strategy; Directorate General of Commercial Intelligence and Statistics, Export Import Data Bank.. Data are as of December 31, 2011. 95 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 96. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATIONInvestment Strategy India and China: Expanding Strengths India’s Relative Strengths / China’s Relative Weaknesses China’s Relative Strengths / India’s Relative Weaknesses • As of early 2011, the Morgan Stanley India strategy team was projecting that India • From the 1980 to 2010 time period, real GDP growth in China averaged 10.1% would be the world’s fastest-growing economy from 2010 through 2030. annually, as compared with 6.2% in India, according to the IMF. • From 2010 to 2020, India was expected to contribute 133 million people to the global • As of May 2011 according to the International Monetary Fund, China’s economy was labor pool, accounting for approximately 26% of the increase in global working-age the second largest in the world, approximately four times larger than India’s population. In comparison, China was expected to contribute 18 million people over economy. the same period, down from 118 million during the 2000 to 2010 time period. The • From 2010 through 2020, China’s consumption was expected to rise, while India’s US, Japan, and Europe were forecast to contribute 8 million, -7 million, and -20 consumption was expected to fall. According to Morgan Stanley Research, India million, respectively, from 2010 to 2020. lagged China in per-capita consumption of key items by a range of three to 13 years, • According to United Nations Population estimates, India would be the only large depending on the product. country with favorable demographics after 2010. Japan, Europe, and the US (in that • According to United Nations World Population data, China’s urbanization rate is order) would experience a significant rise in their aging population. Although China expected to reach 53% by 2020, up from 45% in 2010. By contrast, India’s benefited from a growing working-age population from 1980 to 2010, its aging urbanization rate is expected to reach 34% by 2020, approximately where China was population was expected to grow from 2010 to 2050. By contrast, India’s working- in 2000. age population was expected to grow steadily from 2010 through 2040. • China has superior air, rail, and superhighway infrastructure, including the world’s • Assuming supportive policy measures, the Morgan Stanley India strategy team fastest and longest high-speed rail network as of May 2011. India lacks many of the believed that India would emerge as the global leader in producing secondary- and infrastructural elements needed to foster economic growth and urbanization. China’s tertiary-educated talent from 2010 to 2020. economic growth over the 1985 to 2010 time period indicates that India would need • As of mid-2012, India’s government had expressed its commitment to initiating to increase its infrastructure spending to 10% of GDP, up from the 2010 level of extensive government and economic reforms to improve the social well-being of its 7.5%, in order to achieve a 10% sustainable GDP growth rate. citizenry and to foster economic growth, with plans to: (i) reduce government • Morgan Stanley Research projected that by 2020, China’s high income population, subsidies; (ii) implement a Goods and Services Tax (GST) system, a tax initiative classified as those earning over US$10,000 in annual household income, is forecasted aimed at reforming the existing tax laws, moving from the existing tax system that to account for 51% of China’s population, as compared with India’s high income taxes goods based on production to a new tax system that taxes goods based on population, forecasted to account for 16% of India’s population. consumption; (iii) improve the direct tax system to encourage long-term savings; (iv) consolidate the deficit of the public sector; (v) reduce the government’s ownership in • According to analysis by Morgan Stanley Research, in 2009, China’s total capital state-owned entities; (vi) accelerate spending on infrastructure; and (viii) allow expenditures were more than five times India’s capital expenditures. China’s foreign direct investment in retail marketing and distribution. investment-to-GDP ratio was 1.4 times that of India. Source: Morgan Stanley Investment Strategy; Morgan Stanley & Co. Research, “India and China: New Tigers of Asia, Part III,” August 13, 2010; International Monetary Fund. 96 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 97. Morgan Stanley Smith Barney ISSUES FOR CONSIDERATION Investment Strategy India as an Emerging Global Power Agenda Items for India Indian Aircraft Carrier, INS Viraat • Managing the geopolitical agenda (including relations with China, Pakistan, and other neighboring countries; policies relating to Arunachal Pradesh and Kashmir; and theIndian Nuclear Attack Submarine, INS Chakra size, orientation, and disposition of military resources) • Exercising growing economic and financial power • Respecting differences in culture, history, and political systems • Achieving rapid, widely shared, and environmentally sustainable growth • Sustaining prosperity and managing shared challenges Indian Stealth Multi-role Frigate, INS Saptura • Strengthening the legitimacy and effectiveness of global governance • Managing economic opportunities including: trade; economic liberalization/de- regulation; foreign investment; currency adjustment; the structure and functioning of the international monetary system; climate change and the global commons; and conflicts over access to natural resources • Managing mutual suspicions; managing constraints on freedom of action; managing acceptance and non-acceptance of certain aspects of other nations’ behavior; and Indian Agni V ICBM avoiding “a drift into escalating reciprocal demonization”Source: All images sourced from Wikimedia Commons. Source: Morgan Stanley Smith Barney Investment Strategy; “India Faces a Choice: Is it a Big Power or Great Power? “ by Philip Stephens, Financial Times, March 19, 2009. 97 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 98. Morgan Stanley Smith Barney Investment StrategySri Padmanabhaswamy TempleThe Sri Padmanabhaswamy Templeis a Hindu temple dedicated to theHindu God, Vishnu, and located inTrivandrum in the Indian state ofKerala.The temple grounds have been in usesince the 800s, however, most of thecurrent temple structures were built in Sri Padmanabhaswamy Temple Sri Padmanabhaswamy Templethe 1700s.In the summer of 2011, long-heldsuspicions of vaults, or kallaras,hidden beneath the temple wereconfirmed. The treasure found withinfive of the six kallaras opened has Section 3been estimated to be more than $20billion, with the contents of a sixth,un-opened kallara unknown as of Investing Backgroundmid-2012.As of mid-2012, the question ofownership and custodianship of the The Six Kallaras Vault Atemple’s treasure was being weighedby the Supreme Court of India. • Two kallaras containing ornaments used • Vault A was sealed by a set of three doors (one metal-grille door, one daily by priests sturdy wooden door, and one iron door) as well as a slab thatOne historical account of the concealed the entrance to a room filled with billions of dollars worth of • Two kallaras (Vaults C and D) containingtreasures held within the kallaras is a ornaments used only at festivals treasure, including: gold rings, bangles and lockets; gold chains, eachcollection of 10 million palm leaves studded with jewels and eighteen feet long; approximately one • Two kallaras (Vaults A and B) that, hundred thousand Roman, Napoleonic, Mughal, Dutch, and other goldon which scribes had recorded the according to the temple’s executive, had coins; and loose diamonds, rubies, emeralds, and other precioustemple’s activities beginning in the not been opened since 18851300s until about the early 1900s. stones, some as large as 100 carats Source: “The Secret of the Temple,” by Jake Halperin, The New Yorker, April 30, 2012; “A $22 Billion Question for India: What to do with a Treasure?,” by Vikas Bajaj, The New York Times, July 6, 2011; Wikimedia Commons. 98 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 99. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment Strategy India’s GDP Relative to Four Other Large Emerging Market Economies Inclusive Wealth• In the United Nations’ Inclusive Wealth Gross Domestic Product – Current Prices Report 2012, the concept of Inclusive Wealth was introduced to measure the US$ Billion absolute stock of wealth of a nation as 12,714 well as the change in wealth over time, 13,000 where inclusive wealth was included: India as a China as – Manufactured Capital: Roads, 12,000 Percentage a Multiple buildings, ports, machinery, and Year of China of India equipment 11,000 – Human Capital: Level of education 1980 89.6% 1.12 and skills 10,000 1990 82.9% 1.21 – Natural Capital: Sub-soil resources, local ecosystems, and biomes 2000 39.7% 2.52 9,000• One of the primary goals of the Inclusive Wealth Index is to assess whether the 2010E 26.9% 3.71 economic activity (as reflected through 8,000 GDP) of a nation is sustainable, in other 2017E 22.9% 4.37 words, is the economic development of a 7,000 nation growing, maintaining, or depleting the nation’s wealth 5,930 6,000 Inclusive Wealth Index $US, Trillions 5,000 90 - 08 Country 1990 2008 CAGR 4,000 3,268 United States 86.4 117.8 1.7% 3,106 Japan 45.2 55.1 1.1% 2,906 3,000 China 11.9 20.0 2.9% 2,143 Germany 13.5 19.5 2.1% France 9.2 13.0 1.9% 2,000 1,598 1,487 1,568 1,198 Canada 8.6 11.1 1.4% 1,035 Russia 11.3 10.3 -0.5% 1,000 390 465 476 644 672 181 202 324 288 260 Brazil 4.9 7.4 2.3% 149 NA 227 NA India 3.8 6.2 2.7% 0 Australia 4.7 6.1 1.4% 1980 1990 2000 2010E 2017E Saudi Arabia 3.7 4.9 1.6% South Africa 1.4 1.8 1.6% India China Brazil Russia MexicoSource: Inclusive Wealth Report 2012, United Nations,June 2012; “The Real Wealth of Nations,” The Source: World Economic Outlook, International Monetary Fund, April 2012.Economist, June 30, 2012. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 99 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 100. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment Strategy India’s GDP Per Capita Relative to Four Other Large Emerging Market Economies GDP Per Capita Expressed in Purchasing Power Parity Dollars Inclusive Wealth• India and China have derived most of GDP Per Capita of Select Emerging Market Economies their increase in wealth from In Purchasing Power Parity Dollars manufactured capital, which grew at US$ compound annual growth rates of 5.6% and 9.9%, respectively 25,000 23,637• During this time, India, China, Brazil, and Russia have all experienced a decline in natural capital, which contracted at 22,500 compound annual growth rates of -2.0%, -1.1%, -1.6%, and -0.2%, respectively2008 Inclusive Wealth Per Capita 20,000 18,574 $, Thousands CAGR(1) 17,500 Japan 435 0.91% 15,657 15,510 US 386 0.69% 15,000 14,640 13,932 Canada 332 0.37% Australia 284 0.12% 12,500 10,873 11,314 Germany 236 1.82% France 209 1.44% 10,000Saudi Arabia 189 -1.12% 7,661 7,550 7,357 7,207 Russia 72 -0.31% 7,500 5,363 5,801 Brazil 39 0.91% 4,980 5,000 South Africa 37 -0.07% 3,761 3,419 China 15 2.07% 2,379 2,500 1,534 India 5 0.91% 883 796 419 251 NA NA 0 100 200 300 400 500 0 Manufactured Capital Human Capital 1980 1990 2000 2010E 2017E Natural CapitalNote: India China Brazil Russia Mexico1. Compound annual growth rate from 1990 through 2008.Source: Inclusive Wealth Report 2012, United Nations, Source: World Economic Outlook, by the International Monetary Fund, April 2011.June 2012; “The Real Wealth of Nations,” TheEconomist, June 30, 2012. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 100 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 101. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment Strategy India GDP Per Capita Key Ingredients of Economic Freedom India Nominal GDP Per Capita, At Current Prices, FY1981 – FY2012 • Personal Choice Fiscal Year Ended March 31 US$ 000s • Voluntary exchange coordinated 1.8 by markets 1.5 1.6 1.4 • Freedom to enter and compete in 1.4 markets 1.2 1.2 1.1 1.1 • Protection of persons and their 1.0 0.8 property from aggression by others 0.8 0.8 0.7 0.6 0.52009 Economic Freedom Index 0.6 0.4 0.4 0.4 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3Country Rank ScoreHong Kong 1 9.01 0.2Singapore 2 8.68 0.0New Zealand 3 8.20 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12Switzerland 4 8.03 Source: Reserve Bank of India.Australia 5 7.98Canada 6 7.81 GDP Per Capita Disparities Across Indian States and Union Territories, At Current PricesChile 7 7.77 FY2012, Fiscal Year Ended March 31United Kingdom 8 7.71 US$ 000sMauritius 9 7.67 7.0United States 10 7.60 6.0Germany 21 7.45 5.0Japan 22 7.44 4.0France 42 7.16 3.0Spain 54 6.99 2.0 1.0Italy 72 6.81 .0Mexico 75 6.74 (1) (1) (1) (1) (1) (1) (1)Greece 81 6.55 Pu ra of rh a Ke ry t B nd an ar i A ur NC ndi a Pr nd ac arn sh W ga h M S ik a Ut il N t M aya u ttis a ra b Ka rh M sh ra d m ic r ra a G sh ad n dh rak u sh r Ja Ch Trip a ar im Ut ark m ha al hy jas ir m H elh m ra nd ba ha & yan o l m ha ur l P nja l P ak Na des a tha An ta ad r P han s Ra hm ra r ra ga ht M eng ip Jh ssa & ga un K de e de de Ch G ah k e s la ris ra ha he Ta uja Po ico Bi D l ha at an as izoRussia 82 6.55 s O a Pr N eg a TSouth Africa 87 6.49 ha ta ac m adChina 92 6.43 m da M Hi ArIndia 94 6.40 AnBrazil 102 6.19 Top 5 – Overall Economic Freedom(2) Bottom 5 – Overall Economic Freedom(2) Note:Source: Economic Freedom of the World: 2011 Annual Report, by the Fraser Institute. 1. Data are as of fiscal year 2011. 2. Among the top 20 largest (by population) Indian states according to Academic Foundation report, Economic Freedom of the States of India, 2011. Does not include Union Territories in analysis. Source: Morgan Stanley Smith Barney Investment Strategy; Academic Foundation; Census of India; Reserve Bank of India. 101 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 102. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment Strategy India and Greater Asia Economic Forecast As of September 2012 India and Greater Asia Economic Forecast India’s Outsourcing Industry – Leading By Example Calendar Years ending December 31• The Indian Information Technology and 2007 2008 2009 2010 2011 2012E 2013E Business Process Outsourcing industry Real GDP Growth (%) (IT-BPO) has continued to build upon its global leadership position as the National Asia Ex-Japan 10.8 % 7.3 % 6.4 % 9.2 % 7.6 % 6.0 % 6.6 % Association of Software and Services Companies (NASSCOM) reported that AXJ (Ex-China and India) 6.0 2.8 0.1 7.2 3.9 3.5 NA India increased its market share within (1) Asia Pacific 10.5 7.1 6.3 9.0 7.3 6.5 NA the global sourcing industry from 51% in 2009 to 58% in 2011 India 9.5 7.4 7.2 8.2 7.5 5.0 6.0• The IT-BPO industry was expected to add 230,000 jobs in FY2012, increasing China 14.2 9.6 9.2 10.4 9.3 7.5 7.9 total direct employment to approximately CPI Inflation (%, Period Average) 2.8 million and indirect employment to approximately 8.9 million Asia Ex-Japan 4.6 % 6.4 % 2.4 % 5.1 % 5.8 % 4.4 % NA %• NASSCOM had projected the industry to Asia Pacific (1) 4.3 6.2 2.6 4.9 5.4 3.9 NA account for approximately 7.5% of GDP in FY2012, up from approximately 1.2% India 6.4 8.3 10.9 12.1 8.9 8.7 6.9 in FY1998 China 4.8 5.9 (0.7) 3.3 5.4 2.9 3.1• The industry’s strong growth has served as an example of the potential inherent Current Account (% of GDP) within India’s corporate sector when restrictive labor laws are removed; from Asia Ex-Japan 7.2 % 5.9 % 4.8 % 4.0 % 2.6 % 2.5 % NA % 2001 to mid-2011, a blanket exemption India (0.7) (2.5) (2.0) (3.2) (2.3) NA NA from the Industrial Employment (Standing Orders) Act (1946) was in China 10.1 9.1 5.2 5.2 2.8 2.9 2.7 effect for the industry Monetary Policy Rates (%, Period End) IT-BPO Industry Revenues (2) India 7.75 % 6.50 % 4.75 % 6.25 % 8.50 % 7.50 % 7.00 %$US Billions Percentage of GDP (3)120 8.0 China 7.47 5.31 5.31 5.81 6.56 6.00 6.00100 7.5 USD Exchange Rate (Period End) 80 7.0 India 39.41 48.80 46.53 44.71 53.07 56.00 52.00 60 6.5 China 7.31 6.83 6.83 6.60 6.29 6.30 6.24 40 6.0 Source: Bloomberg; CEIC; Morgan Stanley & Co. Research. 20 5.5 08 09 10 11 12E Notes: Industry Revenue Percentage of GDP 1. Asia Pacific includes: China, Hong Kong, India, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand, and Australia. 2. Represents the composite consumer price index.Source: NASSCOM; Morgan Stanley Smith BarneyInvestment Strategy. 3. Represents the one-year working capital rate. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 102 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 103. Morgan Stanley Smith Barney INVESTING BACKGROUNDInvestment Strategy Asia Pacific Market Valuations As of August 31, 2012 Asia Pacific Market Data Sheet As of August 31, 2012 2002 – 2006 – Dividend Mkt Cap Total Return (US$) 2011 2011 P/E EPS Growth P/B ROE Yield US$Bn 2006 2007 2008 2009 2010 2011 2012 CAGR CAGR 2011 2012E 2013E 2011 2012E 2013E 2013E MSCI AC Asia Pacific Ex Japan 3,432 32.4% 36.5% -51.9% 73.2% 18.1% -15.6% 9.0% 11.9% 4.1% 12.7 12.1 10.6 0.9% 4.9% 13.9% 1.4 13.1% 3.6% Countries Australia 895 30.9% 28.3% -50.7% 76.4% 14.5% -11.0% 11.3% 12.8% 4.1% 13.3 13.1 11.7 1.1% 1.5% 11.8% 1.6 13.5% 5.4% China 590 82.9% 66.2% -50.8% 62.3% 4.6% -18.4% 2.1% 15.1% 7.6% 9.3 9.2 8.2 10.8% 0.9% 11.7% 1.2 14.9% 3.8% Hong Kong 299 30.4% 41.2% -51.2% 60.2% 23.2% -16.0% 12.5% 8.6% 4.1% 12.8 14.8 13.4 17.8% (13.6%) 10.2% 1.1 8.5% 3.4% India 218 51.0% 73.1% -64.6% 102.8% 20.9% -37.2% 9.4% 16.2% 3.6% 15.8 14.2 12.6 12.9% 11.5% 12.5% 2.0 15.8% 1.8% Indonesia 93 73.8% 54.2% -56.5% 126.2% 33.9% 6.0% -1.6% 32.2% 14.1% 15.1 13.8 12.3 21.5% 9.0% 13.0% 2.7 22.2% 3.2% Korea 525 12.6% 31.9% -55.3% 71.3% 26.7% -12.0% 8.1% 13.5% 2.4% 11.3 9.3 7.9 (5.3%) 21.5% 17.2% 1.0 12.9% 1.3% Malaysia 128 37.1% 46.1% -41.2% 52.1% 37.0% 0.1% 8.5% 13.8% 9.4% 17.0 15.3 13.9 6.2% 11.0% 10.8% 1.9 13.8% 3.5% New Zealand 13 16.6% 8.9% -53.8% 50.4% 8.3% 5.5% 15.2% 10.4% 0.1% 15.2 15.4 13.7 0.4% (1.0%) 12.2% 1.6 11.4% 5.7% Philippines 32 58.2% 40.4% -52.6% 65.6% 33.9% -0.9% 25.3% 13.6% 8.8% 18.6 17.2 15.1 3.6% 8.3% 13.6% 2.3 15.4% 2.6% Singapore 191 46.7% 28.4% -47.4% 74.0% 22.1% -17.9% 23.3% 11.5% 5.6% 14.0 13.8 12.8 1.5% 1.8% 7.5% 1.4 10.6% 3.8% Taiwan 373 20.0% 8.4% -46.5% 79.2% 21.8% -20.9% 7.2% 4.1% 1.9% 17.7 16.9 13.3 (29.8%) 4.4% 27.5% 1.6 11.8% 3.7% Thailand 75 11.1% 46.0% -48.5% 76.6% 55.7% -2.7% 17.9% 22.2% 8.4% 13.5 12.0 10.2 11.0% 12.4% 17.5% 1.8 18.0% 4.2%Source: FactSet, MSCI, Morgan Stanley & Co. Research. Select Indian InventionsWootz Steel ─ As early as the 3rd century BC, India developed Buttons ─ Seashells with holes pierced into them found Rocket Artillery (Metal Cylinder) ─ In the late 18th century,the process of forging wootz steel, a steel known for its sharpness throughout the Indus Valley Civilization city of Mohenjo-daro Hyder Ali, then ruler of the Sultanate of Mysore in Southernand toughness along with its characteristic banding patterns. archeological site dating as early as 2000 BC represent the India, incorporated the first iron-casing into an artilleryIndia’s wootz steel was exported across the ancient world and first known use of a button. The earliest buttons found rocket. With an iron-casing superior in strength relative towas used to make Damascus steel swords. appear to be used more for ornamentation as opposed to previous wooden-casings, the new rocket generated fastening. significantly more thrust resulting in a superior range of up to three quarters of a mile.Source: Encyclopedia Britannica Online; “Wootz Steel: An Advanced Material of the Ancient World”, by S. Srinivasan and S. Ranganathan, India Institute of Science, Bangalore; www.wikipedia.org Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 103 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 104. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment Strategy Indian Initial Public Offering Activity Emblem of Annual Initial Public Offering (IPO) Volume, 2000 – 2011 Mizoram • As of year-end 2011, India’s two stock exchanges accounted for 4.2% of the world’s total stock market capitalization. India IPO Priced Equity OfferingsStock Exchanges Around the World US$ BillionsBy Stock Market Capitalization as of December 31, 2011 15 Market Cap. % ofRankCompany Name (US$ Tn) World 1 NYSE Euronext (US) 11.8 24.9% 2 NASDAQ OMX 3.8 8.1% 3 Tokyo SE Group 3.3 7.0% 4 London SE Group 3.3 6.9% 10.6 5 NYSE Euronext (Europe) 2.4 5.2% 10 9.7 6 Shanghai SE 2.4 5.0% 7 Hong Kong Exchanges 2.3 4.8% 8 TMX Group (Canada) 1.9 4.0% 8.2 9 BOVESPA (Brazil) 1.2 2.6% 10 Australian SE 1.2 2.5% 11 Deutsche Börse 1.2 2.5% 12 SIX Swiss Exchange 1.1 2.3% 4.9 13 Shenzhen SE 1.1 2.2% 5 14 BME Spanish Exchanges 1.0 2.2% 4.0 15 Bombay SE 1.0 2.1% 2.9 16 Korea Exchange 1.0 2.1% 2.4 17 National Stock Exchange India 1.0 2.1% 1.2 1.4 18 NASDAQ OMX Nordic Exchange 0.8 1.8% 19 Johannesburg SE 0.8 1.7% 0.4 0.2 0.0 20 MICEX (Russia) 0.8 1.6% 0 Total 47.4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Denotes Indian Stock Exchange Number of 13 8 6 10 25 57 82 104 40 20 70 41 Transactions:Source: World Federation of Exchange Members. Data are as of December 2011. Note: 1. The equity offerings include all Indian companies listed on stock exchanges globally. Source: Dealogic. Data are as of December 2011. 104 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 105. Morgan Stanley Smith Barney INVESTING BACKGROUNDInvestment Strategy Largest Indian IPOs in 2011 Emblem of Sikkim National Stock Exchange Bombay Stock ExchangeLargest Indian Initial Public Offerings in 2011 Deal Size Offer Price Shares Offered Pricing Date Issuer Industry ($US MM) (US$) (MM) Bookrunners Exchange Barclays Capital, Citi, Credit Suisse, HSBC, JM Bombay / 1 1-Aug-11 L&T Finance Holdings Ltd Finance 279 1.16 238 Financial Ltd National Bombay / 2 3-May-11 Muthoot Finance Ltd Finance 202 3.92 52 ICICI Bank, Kotak Mahindra Bank Ltd National Enam Financial Consultants, JM Financial Ltd, Kotak Bombay / 3 5-May-11 Future Ventures India Ltd Finance 167 0.22 750 Mahindra Bank Ltd National Almondz Global Securities Ltd, ICICI Bank, JM Bombay / 4 25-Mar-11 PTC India Financial Services Ltd Finance 97 0.62 157 Financial Ltd, State Bank of India National Antique Stock Broking Ltd, Enam Financial Bombay / 5 5-Sep-11 TD Power Systems Ltd Machinery 49 5.58 9 Consultants, Equirus Capital Pvt Ltd National Bombay / 6 5-May-11 Innoventive Industries Ltd Metal & Steel 48 2.61 19 AXIS Bank, Avendus Capital Pvt Ltd National IDBI Bank Ltd, Karvy Consultants Ltd, SPA Merchant Bombay / 7 31-Aug-11 SRS Ltd Leisure & Recreation 44 1.26 35 Bankers Ltd National Bombay / 8 28-Feb-11 Acropetal Technologies Ltd Professional Services 37 1.98 19 Saffron Capital Advisors Pvt Ltd National Anand Rathi Financial Services Ltd, Bombay / 9 11-Jan-11 C. Mahendra Exports Ltd Consumer Products 36 2.40 15 Yes Bank Ltd National Anand Rathi Financial Services Ltd, Bombay /10 20-May-11 Aanjaneya Lifecare Ltd Healthcare 26 5.18 5 IDBI Bank Ltd National JM Financial Ltd, Bombay /11 18-Aug-11 Tree House Education & Accessories Ltd Professional Services 25 3.02 8 Motilal Oswal Financial Services Ltd National Bombay /12 16-Sep-11 PG Electroplast Ltd Computers & Electronics 25 4.35 6 Almondz Global Securities Ltd National Bombay /13 11-Oct-11 Flexituff International Ltd Textiles 21 3.13 7 Collins Stewart Inga Pvt Ltd National Bombay /14 17-Mar-11 Lovable Lingerie Ltd Textiles 20 4.46 5 Anand Rathi Financial Services Ltd National London Alt.15 17-Jun-11 Kolar Gold Ltd Mining 20 0.65 30 Cenkos Securities plc, Ocean Equities Ltd Investment Market Source: Dealogic; Data are as of December 2011. The securities mentioned are provided for informational purposes only and should not be deemed as a recommendation to buy or sell. Returns do not include payment of any charges or fees an investor would pay to purchase the securities. Such costs would lower performance. 105 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 106. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment Strategy Indian M&A Activity Emblem of National Capital Annual M&A Volume, 2000 – 2011 Territory of DelhiIndias Wealthiest Individuals Indian M&A TransactionsAs of March 2012 Includes Domestic and International Transactions Involving Indian Companies, As Acquirors or Targets Net Worth US$ Billions Name Business US$ Bn 100 Petrochemicals, 1 Mukesh Ambani 22.3 Oil & Gas 2 Lakshmi Mittal Steel 20.7 3 Azim Premji Software 15.9 4 Savitri Jindal(1) Steel 10.9 75 67.6 67.6 5 Sunil Mittal(1) Telecom 8.1 6 Kumar Birla Commodities 8.0 7 Anil Ambani Diversified 7.8 50 48.0 46.8 8 Dilip Shanghvi Pharmaceuticals 7.4 9 Shashi & Diversified 7.0 37.6 Ravi Ruia 34.810 Kashal Pal Singh Real Estate 6.4Note: 25 22.21. Includes wealth of family members.Source: Forbes. 11.1 8.3 7.1 6.4 4.8 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Number of 893 704 591 710 765 1,270 1,487 1,549 1,442 1,323 1,372 1,076 Transactions: Source: Thomson Reuters. Data are as of December 2011. 106 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 107. Morgan Stanley Smith Barney INVESTING BACKGROUNDInvestment Strategy Largest Indian M&A Transactions in 2011 Indian Acquirors Accounted for 10 of the Top 15 Indian M&A Transactions in 2011, Six of Which Were Cross-BorderLargest Indian M&A Transactions in 2011 Date Nationality of Nationality of Deal Size Announced Target Name Target Target Industry Target Business Description Acquiror Name Acquiror ($US MM) 30% stake in 23 oil and gas production sharing contracts that United 1 21-Feb-11 Reliance Industries Ltd India Energy BP PLC 9,000 Reliance operates in India Kingdom 2 3-May-11 Abbot Point Coal Terminal Australia Transportation Owner and operator of a coal terminal in Queensland, Australia Mundra Port & Special Eco Zone India 1,951 Building Products/ 3 31-Jan-11 Siemens Ltd India Provides electrical and electronic engineering services Siemens AG Germany 1,354 Construction Hancock Coal / Queensland Metals/Mining/ 4 16-Sep-11 Australia Coal assets located in Queensland, Australia GVK Power & Infrastructure Ltd India 1,260 Coal Coal Hero Investments Pvt Ltd / 5 9-Mar-11 India Automotive Largest manufacturer of motorcycles and scooters in India Investor Group India 1,007 The Hero Group Patni Computer Systems 6 10-Jan-11 India Technology Provides IT services and business solutions Investor Group India 920 Ltd Columbian Chemicals 7 31-Jan-11 United States Chemicals Manufactures carbon black products and iron oxide pigments Aditya Birla Mgmt Corp Pvt India 875 Company Reliance Life Insurance Co 8 14-Mar-11 India Insurance Provides life insurance plans Nippon Life Insurance Co Japan 680 Ltd 9 19-Sep-11 Fortis Healthcare Intl Singapore Health Services Owns and operates hospitals Fortis Healthcare (India) Ltd India 66510 25-Jul-11 Holidaybreak PLC United Kingdom Transportation Provides various travel services Cox & Kings Ltd India 659 Intelenet Global Services Business Process United11 31-May-11 India Provides business process outsourcing services Serco Group PLC 633 Pvt Ltd Outsourcing Kingdom12 10-Aug-11 Vodafone Essar Ltd India Telecomm Provides telecommunication services Piramal Healthcare Ltd India 631 Metals/Mining/13 12-Aug-11 Golden Energy Mines PT Indonesia Owns coal mining assets in Indonesia GMR Infrastructure Invest India 550 Coal Growmore Trade &14 7-Jul-11 India Other Investment company Adani Power Ltd India 530 Investment UTV Software15 26-Jul-11 India Media Integrated media and entertainment company The Walt Disney Co (SE Asia) United States 501 Communications Ltd Source: Thomson Reuters. Data are as of December 2011. The securities mentioned are provided for informational purposes only and should not be deemed as a recommendation to buy or sell. Returns do not include payment of any charges or fees an investor would pay to purchase the securities. Such costs would lower performance. 107 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 108. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment Strategy Cross-Border M&A Activity in India India Has Become a Relevant Factor in Cross-Border Acquisitions Over the Past DecadeIndian Cross-Border Acquisition BRIC Total Share of Global Cross-Border Transactions as Acquiror Activity 2000 – 2011• Motivated by a desire to attain global % % scale, acquire raw materials, obtain 25 25 technical innovation, and secure 20 20.4 20 access to foreign markets, Indian 17.3 corporations accounted for 15 15.1 15 approximately 1.4% of the value of 10 10.3 10 cross-border acquisitions in 2011. 8.5 7.0 6.0 6.6• Cross-border acquisition volume has 5 4.8 5 1.2 4.4 grown at a CAGR of 27.1% over the 2.4 0 0 10-year period from 2002 – 2011, 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 resulting in approximately an 11x increase in deal volume. BRIC Total India China Brazil Russia• Outgoing cross-border acquisition Source: Bloomberg activity has been focused on securing access to natural resources as well as growth and technological targets such Notable Cross-Border Acquisitions by India, 2006 – 2011 as Bharti Airtel’s acquisition of Zain and Tata Group’s acquisition of Jaguar Deal Land Rover, respectively. Date Acquiror Name Size ($MM) Target Name Industry Description Metals/Mining/ Tata acquires Europes 2nd largest• Incoming cross-border activity has 1 17-Oct-06 Tata Steel Ltd 12,695 Corus Group PLC Coal steel producer been focused on the Telecom, Pharma, and Energy sectors. A leading emerging markets telco acquires 2 14-Feb-10 Bharti Airtel Ltd 10,700 Zain Africa BV Telecom operations in 15 countries in Africa• Incoming cross-border deals include Indias largest non-ferrous metals company Vodafone’s $18.6 Bn buyout of 3 10-Feb-07 Hindalco Industries Ltd 5,767 Novelis Inc. Metals/Mining/ acquires worlds leading producer of aluminum Vodafone India, BP’s $9.0 Bn Coal rolled products acquisition of a 30% stake in 23 oil & Republic of Multi-national consortium awarded a stake in gas production sharing contracts 4 10-Feb-10 Investor Group 4,848 Venezuela-Carabobo Energy Carabobo oil fields of Venezuela owned by Reliance, and Abbott’s $3.7 Tata acquires iconic British brands, Jaguar Bn acquisition of Piramal’s Healthcare 5 26-Mar-08 Tata Motors Ltd 2,300 Jaguar Cars Ltd Automotive and Land Rover Solutions business. Source: Thomson Reuters. Data are as of December 2011. Source: Thomson Reuters. Data are as of December 2011. 108 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 109. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment Strategy India’s Domestic Fund Management Industry and India’s Individual Investors India’s Growing Domestic Asset Management Industry Individual Investors Participation in the Securities Market• Established in 1963 as a hybrid development bank and mutual fund, the Unit Trust of India • While individual investors represent 54% of total mutual fund assets under management, (UTI) was the dominant institutional investor in the securities markets and the main mutual India’s securities market has been characterized by lackluster retail investor participation fund option for Indian investors until the reforms initiated in 1992. with only 1.6% of the population owning a dematerialisation account as of December 31, 2011.• The Securities Exchange Board of India (SEBI) Act of 1992 established the SEBI and set the stage for strong growth in the mutual fund industry, in conjunction with follow-on • SEBI and the Indian government have acknowledged the lack of retail participation and legislation in 1993 which permitted international asset managers to set up mutual funds. have proposed and introduced initiatives such as no-frills demat accounts with lower fees and tax-efficient investment fund types (e.g., Rajiv Gandhi Equity Savings Scheme), Aggregate Assets under Management (AuM) of Mutual Funds respectively, in an effort to broaden participation. AuM of Mutual Funds (US$ Billions) BSE SENSEX 30 Index (US Dollars) Total Mutual Fund AuM – By Investor Classification 200 600 As of March 31, 2012 Foreign Institutional 500 Dematerialisation Accounts 150 Banks/ Investors 400 Financal Institutions 1% 100 300 2% Corporations • A securities account maintained 200 43% by either of two available 50 High Net Worth depositories 100 Individuals (2) • Effectively necessary to directly 0 0 27% trade listed shares 02 03 04 05 06 07 08 09 10 11 AuM of Mutual Funds BSE SENSEX 30 Index • Not required to trade mutual fund Retail units Source: Association of Mutual Funds in India; Bloomberg. Data are as of December 31, 2011. 27% Source: Morgan Stanley Smith Barney Investment Strategy; SEBI. Source: Association of Mutual Funds in India. Expansion of Mutual Fund Types Dematerialisation Account Growth and Penetration Number of Mutual Fund Types NAV per MF Type (US$ Millions) Number of Dematerialisation Accounts Dematerialisation Penetration of Population (%) 1,500 225 25 2.5 20 2.0 1,000 150 15 1.5 10 1.0 500 75 5 0.5 0 0 0 0.0 02 03 04 05 06 07 08 09 10 11 02 03 04 05 06 07 08 09 10 11(1) (1) Open-End Closed-End Other NAV per MF Type Number of Dematerialisation Accounts % Penetration Source: Association of Mutual Funds in India; Bloomberg; Morgan Stanley Smith Barney Investment Strategy. Data are as Source: Central Depository Services Ltd.; National Securities Depository Ltd.; IMF. Data are as of December 31, 2011. of December 31, 2011. Note: 1. Other includes Assured Return funds and Interval funds. 2. High Net Worth Individuals are defined as individuals investing Rs. 5 lakhs or greater. 109 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 110. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment Strategy Regulatory Landscape for Foreign Investors For QFI and FII Definitions, See Page 142 Qualified Foreign Investors (QFIs) - Individuals Foreign Institutional Investors (FIIs) • To invest directly in equity shares and mutual funds, QFIs must open a • A single FII and its sub-accounts cannot own more than 10% of the paid-up dematerialisation (demat) account with a Depository Participant in India equity capital of an Indian company • QFIs may open only one demat account; however, they may have multiple • Aggregate investment by FIIs cannot exceed more than 24% of the paid-up brokerage accounts equity capital of an Indian companyEquity , however, • QFIs can invest directly in equity shares listed on recognized stock exchanges a company can increase the aggregate level of FII investment above 24% and and in equity shares offered to the public (Enacted Jan. 13, 2012) up to the sectoral cap/statutory ceiling when both the Board of Directors and • Individual QFIs may not own more than 5% of the paid-up equity capital of an the General Body pass a resolution to that effect Indian company • Foreign Corporations and High Net Worth Individuals (HNIs) registered as • The aggregate shareholding of all QFIs may not exceed 10% of the paid-up sub-accounts of an FII are restricted to 5% of the paid-up equity capital of an equity capital of an Indian company Indian company • Aggregate FII investment in government securities may not exceed $20 Billion • In July 2012, the Securities and Exchange Board of India announced that, for (Raised from $15 Billion on Jun. 25, 2012) the first time, QFIs would be able to directly invest in Indian corporate debtDebt • Aggregate FII investment in corporate debt may not exceed $20 Billion • Aggregate investment by QFIs in corporate debt shall not exceed $1 Billion; (Raised from $15 Billion on Nov. 18, 2011) the QFI limit is over and above the $20 Billion FII investment limit (Enacted July 18, 2012) • Aggregate FII investment in corporate debt issued by the infrastructure sector(1) may not exceed $25 Billion (Raised from $5 Billion on Mar. 31, 2011) • QFIs can invest in Indian equity and debt mutual funds either; (i) directly, through holding units in a demat account; or (ii) indirectly, through holdingMutual Funds Unit Confirmation Receipts (UCRs) from a non-Indian issuer (Enacted Aug. 9, 2011) • FIIs can invest in Indian equity and debt mutual funds • Aggregate investment by QFIs in equity funds shall not exceed $10 Billion • Aggregate investment by QFIs in debt funds which invest in infrastructure debt(1) shall not exceed $3 Billion, within the existing ceiling of $25 Billion for FII investment in corporate bonds issued by infrastructure companies Note: 1. With a residual maturity of five years or more. Source: Securities and Exchange Board of India, Morgan Stanley Smith Barney Investment Strategy. 110 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 111. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment StrategySub-Sectors Where FDI is Banned Regulatory Landscape for Foreign Direct Investment• Retail Trade As of September 2012 – Except single brand product retailing• Atomic Energy Regulatory Landscape for Foreign Direct Investment• Lottery (1) – Including government/private lotteries, Sector FDI Cap/Equity Entry Route and online lotteries Agriculture 100% Automatic/FIPB• Gambling and Betting• Business of Chit Fund Industry 100% Automatic/FIPB – A type of savings scheme• Nidhi Company Manufacturing 100% Automatic – A mutual benefit financial company - Defense 26% FIPBRecent Developments Services• In Nov. 2011, UPA government cabinet approved 100% FDI in single-brand retail and - Civil Aviation 49 – 100% Automatic/FIPB 51% in multi-brand retail - Asset Reconstruction 49% FIPB• In Jan. 2012, government formally approved 100% FDI in single-brand retail  74% (FDI+FII) - Banking (Private Sector) Automatic• Under pressure from opposition groups  FII not to exceed 49% concerned with potential job losses for small retailers, the UPA government suspended - Non-Banking Financial Companies 100% Automatic pursuit of FDI in multi-brand retail - Broadcasting 20 – 100% FIPB• In Apr. 2012, the Reserve Bank of India stated there was a case for a higher FDI cap  49% (FDI+FII) in the insurance sub-sector - Commodity Exchanges  FDI not to exceed 26% FIPB• Additionally, the RBI stated that the FDI restrictions on multi-brand retail trading and  FII not to exceed 23% generation, transmission, and distribution of - Insurance 26% Automatic electricity produced by atomic energy should be revisited  49% (Public Sector Undertakings)  FIPB (PSUs) - Petroleum & Natural Gas (Refining)• In Sep. 2012, the UPA cabinet approved a  100% (Private Companies)  Automatic (Pvt.) new proposal to allow 51% FDI in multi-brand retail with requirements including: - Print Media 26 – 100% FIPB – At least 50% of total FDI must be invested  100% (Single-brand) in “backend infrastructure” (e.g. cold- - Retail Trade FIPB storage and warehouses)  51% (Multi-brand) – At least 30% of the value of procurement  74% (including FDI, FII, NRI,  Up to 49%: of manufactured products must be sourced - Telecommunications FCCBs, ADRs/GDRs, and Automatic from Indian “small industries” (total investment in plant and machinery of less convertible preference shares)  Beyond 49%: FIPB than $1 million) Note: 1. Investments applicable to the automatic route are handled by the Reserve Bank of India while the government handles investments that are required to go through the approval route through institutions such as the Foreign Investment Promotion Board (FIPB). Source: Morgan Stanley Smith Barney Investment Strategy; Reserve Bank of India; Department of Industrial Policy and Promotion. 111 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 112. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment Strategy Performance of the Bombay Stock Exchange SENSEX 30 Index 1995 Through 2012YTD Emblem of Puducherry History of the Bombay Stock BSE SENSEX 30 Index Exchange Indian Rupees• Established in 1875, the BSE was 25,000 the first stock exchange in Asia. BSE SENSEX 30 Index Composition• Prior to the formation of the Native (As of Dec. 31, 2011) Share Stock Broker’s Association Index Weight (%) BSE S&P in 1875, the earliest stock broker 20,000 Sector SENSEX 30 500 meetings took place under Banyan Financials 24.0 13.4 trees in front of the Bombay Town Information Technology 18.0 19.0 Energy 14.8 12.3 Hall (now Horniman Circle). Consumer Staples 12.1 11.5• In 1956, the BSE was the first Consumer Discretionary 9.3 10.7 15,000 Industrials 6.4 10.7 stock exchange to be granted Materials 5.6 3.5 permanent recognition in India. Telecom Services 3.6 3.2 Utilities 3.2 3.9• On Feb. 7, 2006, the BSE Health Care 2.9 11.9 SENSEX 30 closed above 10,000. Total 100.0 100.0 10,000• As of Dec. 31, 2011, the BSE was the 15th largest stock exchange in the world, with a 2.1% share of world market cap. 5,000 The large, leathery, and glossy green leaves of Ficus Benghalensis (Indian Banyan), the National Tree of India 0 (1) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1995 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201 % Price Change Per Year: -21% -1% +19% -16% +64% -21% -18% +4% +73% +13% +42% +47% +47% -52% +81% +17% -25% +13% BSE Sensex 30 Index Source: Bloomberg; FactSet. Note:Sources: Bombay Stock Exchange, www.bseindia.com; 1. Data are as of August 31, 2012. Wikimedia Commons. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 112 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 113. Morgan Stanley Smith Barney INVESTING BACKGROUNDInvestment Strategy Constituents of the BSE SENSEX 30 Index Price Performance Data in US Dollars as of December 31, 2011 YE2011 Value of US$1.00 Price Return (US$) (%) Company Name if Purchased on 1/1/06 Index weight 2006 2007 2008 2009 2010 2011 1 Infosys Ltd. 1.56 10.65% 52.1 (11.4) (48.9) 144.0 37.6 (32.4) 2 Reliance Industries Ltd. 1.77 9.85% 94.2 154.7 (65.5) 85.4 1.1 (44.9) 3 ITC Ltd. 2.40 8.67% 26.0 34.2 (34.0) 53.2 44.8 (2.9) 4 Housing Development Finance Corp. Ltd. 2.28 7.16% 37.1 98.5 (58.1) 88.5 41.5 (24.9) 5 HDFC Bank Ltd. 2.56 6.31% 53.8 81.4 (53.3) 78.5 43.6 (23.4) 6 ICICI Bank Ltd. 0.99 6.23% 54.9 55.4 (70.6) 104.5 36.0 (49.6) 7 Tata Consultancy Services Ltd. 2.31 5.38% 45.6 (0.2) (64.3) 228.4 61.7 (16.1) 8 Larsen & Toubro Ltd. 1.83 4.33% 59.1 224.7 (70.0) 127.0 22.6 (57.7) 9 State Bank of India 1.60 3.65% 39.6 113.7 (53.4) 84.4 28.9 (51.5) 10 Bharti Airtel Ltd. 1.68 3.60% 85.0 77.6 (41.8) (3.7) 13.4 (19.4) 11 Hindustan Unilever Ltd. 1.75 3.48% 11.6 10.9 (5.4) 10.8 22.8 9.9 12 Oil & Natural Gas Corp. Ltd. 1.11 3.47% 13.0 59.6 (56.3) 84.7 14.3 (33.1) 13 Mahindra & Mahindra Ltd. 2.26 2.48% 79.9 6.7 (74.2) 311.7 49.7 (26.0) 14 Tata Motors Ltd. 1.20 2.46% 40.2 (7.4) (82.1) 421.7 71.5 (42.5) 15 NTPC Ltd. 1.21 2.09% 23.7 105.9 (41.4) 36.3 (11.4) (32.6) 16 Wipro Ltd. 1.22 1.93% 32.7 (2.4) (64.1) 204.6 25.2 (31.5) 17 Bajaj Auto Ltd. NA 1.82% NA NA NA 371.5 82.1 (13.0) 18 Tata Steel Ltd. 0.85 1.78% 29.0 146.3 (81.2) 198.2 14.4 (58.4) 19 Sun Pharmaceutical Industries Ltd. 3.33 1.62% 45.9 51.3 (29.5) 48.2 67.3 (13.7) 20 Bharat Heavy Electricals Ltd. 1.46 1.62% 68.6 152.5 (57.3) 84.9 0.6 (56.7) 21 Jindal Steel & Power Ltd. 7.29 1.50% 46.0 660.5 (76.0) 384.9 5.4 (46.5) 22 Hero MotoCorp Ltd. 1.88 1.50% (9.8) 2.8 (6.6) 123.2 20.4 (19.2) 23 Coal India Ltd. NA 1.50% NA NA NA NA NA (19.5) 24 Cipla Ltd. 1.53 1.32% 43.7 (4.8) (28.9) 88.0 14.7 (27.3) 25 Hindalco Industries Ltd. 0.75 1.23% 23.5 38.6 (78.6) 225.8 59.3 (60.4) 26 Tata Power Co. Ltd. 1.70 1.14% 30.7 195.0 (58.8) 92.8 3.1 (46.2) 27 Sterlite Industries (India) Ltd. 1.47 1.07% 166.9 113.8 (79.6) 246.0 (9.8) (59.6) 28 Maruti Suzuki India Ltd. 1.23 1.05% 48.2 19.9 (57.5) 214.0 (5.2) (45.5) 29 DLF Ltd. NA 0.61% NA NA (78.8) 34.1 (15.9) (47.2) 30 Jaiprakash Associates Ltd. 0.86 0.48% 90.0 229.3 (84.2) 177.9 (25.0) (58.3) Source: Bloomberg; FactSet. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 113 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 114. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment Strategy Performance of the National Stock Exchange S&P CNX Nifty Index 1995 Through 2012YTD Emblem of Chandigarh History of the National Stock NSE “Nifty 50” Index Exchange Indian Rupees• Located in Mumbai 7,000• Established in 1992 and NSE "Nifty 50" Index Composition recognized as a stock exchange in (As of Dec. 31, 2011) Index 1993, the NSE began facilitating 6,000 Index Weight (%) NSE S&P trades in equities in late 1994. Sector "Nifty 50" 500 Financials 24.8 13.4• As of Dec. 31, 2011, the NSE was Information Technology 15.8 19.0 the 17th largest stock exchange in 5,000 Energy 13.4 12.3 the world, with a 2.1% share of Consumer Staples 10.7 11.5 world market capitalization. Materials 8.3 10.7 Consumer Discretionary 8.1 10.7 4,000 Industrials 6.0 3.5 Utilities 5.3 3.2 Health Care 4.3 3.9 Telecom Services 3.3 11.9 3,000 Total 100.0 100.0 2,000 1,000 The National Stock Exchange in MumbaiSources: National Stock Exchange of India, www.nseindia.com; Wikimedia Commons. 0 (1) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1995 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201 % Price Change Per Year: -23% -1% +20% -18% +67% -15% -16% +3% +72% +11% +36% +40% +55% -52% +76% +18% -25% +14% NSE "Nifty 50" Index Source: Bloomberg; FactSet. Note: 1. Data are as of August 31, 2012. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 114 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 115. Morgan Stanley Smith Barney INVESTING BACKGROUNDInvestment Strategy Constituents of the NSE S&P CNX Nifty Index Price Performance Data in US Dollars as of December 31, 2011 YE2011 Value of US$1.00 Price Return (US$) (%) Company Name if Purchased on 1/1/06 Index weight 2006 2007 2008 2009 2010 2011 1 Infosys Ltd. 1.56 9.50% 52.1 (11.4) (48.9) 144.0 37.6 (32.4) 2 Reliance Industries Ltd. 1.77 8.32% 94.2 154.7 (65.5) 85.4 1.1 (44.9) 3 ITC Ltd. 2.40 7.70% 26.0 34.2 (34.0) 53.2 44.8 (2.9) 4 Housing Development Finance Corp. Ltd. 2.28 6.16% 37.1 98.5 (58.1) 88.5 41.5 (24.9) 5 ICICI Bank Ltd. 0.99 5.61% 54.9 55.4 (70.6) 104.5 36.0 (49.6) 6 HDFC Bank Ltd. 2.56 5.46% 53.8 81.4 (53.3) 78.5 43.6 (23.4) 7 Tata Consultancy Services Ltd. 2.31 4.19% 45.6 (0.2) (64.3) 228.4 61.7 (16.1) 8 Larsen & Toubro Ltd. 1.83 3.80% 59.1 224.7 (70.0) 127.0 22.6 (57.7) 9 Hindustan Unilever Ltd. 1.75 2.98% 11.6 10.9 (5.4) 10.8 22.8 9.9 10 State Bank of India 1.60 2.97% 39.6 113.7 (53.4) 84.4 28.9 (51.5) 11 Bharti Airtel Ltd. 1.68 2.94% 85.0 77.6 (41.8) (3.7) 13.4 (19.4) 12 Oil & Natural Gas Corp. Ltd. 1.11 2.46% 13.0 59.6 (56.3) 84.7 14.3 (33.1) 13 Mahindra & Mahindra Ltd. 2.26 2.23% 79.9 6.7 (74.2) 311.7 49.7 (26.0) 14 Tata Motors Ltd. 1.20 2.22% 40.2 (7.4) (82.1) 421.7 71.5 (42.5) 15 Tata Steel Ltd. 0.85 1.59% 29.0 146.3 (81.2) 198.2 14.4 (58.4) 16 Bajaj Auto Ltd. NA 1.52% NA NA NA 371.5 82.1 (13.0) 17 Axis Bank Ltd. 2.39 1.49% 66.6 131.5 (57.8) 105.1 42.0 (49.7) 18 NTPC Ltd. 1.21 1.46% 23.7 105.9 (41.4) 36.3 (11.4) (32.6) 19 Wipro Ltd. 1.22 1.45% 32.7 (2.4) (64.1) 204.6 25.2 (31.5) 20 Dr. Reddys Laboratories Ltd. 2.73 1.42% 68.6 1.8 (48.3) 154.9 51.3 (20.1) 21 Coal India Ltd. NA 1.35% NA NA NA NA NA (19.5) 22 Bharat Heavy Electricals Ltd. 1.46 1.34% 68.6 152.5 (57.3) 84.9 0.6 (56.7) 23 Sun Pharmaceutical Industries Ltd. 3.33 1.33% 45.9 51.3 (29.5) 48.2 67.3 (13.7) 24 Hero MotoCorp Ltd. 1.88 1.29% (9.8) 2.8 (6.6) 123.2 20.4 (19.2) 25 Jindal Steel & Power Ltd. 7.29 1.25% 46.0 660.5 (76.0) 384.9 5.4 (46.5) Source: Bloomberg; FactSet. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 115 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 116. Morgan Stanley Smith Barney INVESTING BACKGROUNDInvestment Strategy Constituents of the NSE S&P CNX Nifty 50 Index Price Performance Data in US Dollars as of December 31, 2011 YE2011 Value of US$1.00 Price Return (US$) (%) Company Name if Purchased on 1/1/06 Index weight 2006 2007 2008 2009 2010 2011 26 GAIL (India) Ltd. 1.84 1.23% 0.1 132.7 (53.9) 109.9 28.7 (36.7) 27 Cipla Ltd. 1.53 1.16% 43.7 (4.8) (28.9) 88.0 14.7 (27.3) 28 Kotak Mahindra Bank Ltd. 3.27 1.13% 81.5 264.4 (77.7) 135.0 17.4 (19.6) 29 Grasim Industries Ltd. 1.69 1.12% 103.9 47.0 (73.0) 113.0 8.8 (9.8) 30 Hindalco Industries Ltd. 0.75 1.06% 23.5 38.6 (78.6) 225.8 59.3 (60.4) 31 Power Grid Corp. of India Ltd. NA 1.01% NA NA (53.2) 38.5 (7.2) (14.3) 32 Tata Power Co. Ltd. 1.70 1.00% 30.7 195.0 (58.8) 92.8 3.1 (46.2) 33 Sterlite Industries (India) Ltd. 1.47 0.90% 166.9 113.8 (79.6) 246.0 (9.8) (59.6) 34 Maruti Suzuki India Ltd. 1.23 0.86% 48.2 19.9 (57.5) 214.0 (5.2) (45.5) 35 Ambuja Cements Ltd. 1.65 0.83% 80.5 16.7 (61.6) 55.8 43.6 (8.5) 36 Cairn India Ltd. NA 0.81% NA NA (46.0) 71.3 23.0 (20.6) 37 Infrastructure Development Finance Co. Ltd. 1.06 0.77% 7.7 231.0 (76.3) 141.6 23.0 (57.6) 38 ACC Ltd. 1.80 0.76% 106.7 6.0 (62.3) 90.9 28.4 (11.0) 39 Punjab National Bank 1.42 0.74% 10.5 47.2 (35.9) 80.4 40.2 (46.0) 40 HCL Technologies Ltd. 1.22 0.68% 22.3 14.8 (71.9) 237.5 27.8 (28.3) 41 DLF Ltd. NA 0.47% NA NA (78.8) 34.1 (15.9) (47.2) 42 Sesa Goa Ltd. 2.72 0.45% 41.7 203.9 (63.7) 401.7 (16.8) (58.3) 43 Ranbaxy Laboratories Ltd. 0.95 0.44% 10.0 22.1 (52.1) 114.6 20.4 (43.0) 44 Bharat Petroleum Corp. Ltd. 0.94 0.44% (21.1) 74.6 (41.9) 76.2 8.2 (38.7) 45 Jaiprakash Associates Ltd. 0.86 0.42% 90.0 229.3 (84.2) 177.9 (25.0) (58.3) 46 Siemens Ltd. 1.51 0.39% 59.7 87.4 (75.5) 112.3 46.7 (34.1) 47 Steel Authority of India Ltd. 1.27 0.34% 68.0 258.0 (78.0) 225.3 (21.1) (62.6) 48 Reliance Communications Ltd. NA 0.33% NA 77.9 (75.4) (20.3) (12.7) (59.5) 49 Reliance Infrastructure Ltd. 0.48 0.33% (12.6) 361.2 (78.0) 107.2 (23.6) (66.0) 50 Reliance Power Ltd. NA 0.28% NA NA NA 35.5 6.1 (62.2) Source: Bloomberg; FactSet. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 116 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 117. Morgan Stanley Smith Barney INVESTING BACKGROUND Investment Strategy Performance of the MSCI India Index Emblem of 1993 Through 2012YTD Andaman and Nicobar IslandsMSCI India Index Composition MSCI India Index – Price Performance (Excluding Dividends)(As of Jun. 29, 2012) IndexSector Weight % Index Level (Expressed in US Dollars)Financials 27.2Information Technology 16.2 800Energy 12.3Consumer Staples 9.4Materials 9.1 700Consumer Discretionary 7.8Industrials 5.7Health Care 5.4Utilities 4.7 600Telecom Services 2.1Total 100.0 Source: FactSet. 500MSCI Index Composition Across BRICs% 400100 75 48.6 62.2 59.4 300 84.8 50 20.4 25 19.8 27.6 200 31.0 18.0 13.0 11.3 0 3.9 India Brazil China Russia 100 High P/E Multiple (1) Medium P/E Multiple(2) Low P/E Multiple(3) 0 (1) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Note:1. Includes Energy, Financial, and Materials sectors. % Price Change +33% +9% -32% -4% +10% -23% +85% -23% -21% +6% +74% +16% +35% +49% +71% -65% +101% +19% -38% +8%2. Includes Consumer Discretionary, Industrials, Per Year: Telecom Services, and Utilities sectors. Source: FactSet; MSCI.3. Includes Consumer Staples, Health Care, and Note: Information Technology sectors. 1. Data are as of August 31, 2012.Source: FactSet; MSCI. Data are as of June 29, 2012. Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. 117 Please refer to important information, disclosures, and qualifications at the end of this material.
  • 118. Morgan Stanley Smith Barney INVESTING BACKGROUNDInvestment Strategy Constituents of the MSCI India Index Price Performance Data in US Dollars as of December 31, 2011 YE2011 Value of US$1.00 Price Return (US$) (%) Company Name if Purchased on 1/1/06 Index weight 2006 2007 2008 2009 2010 2011 1 Infosys Ltd. 1.56 11.22% 52.1 (11.4) (48.9) 144.0 37.6 (32.4) 2 Reliance Industries Ltd. 1.77 8.54% 94.2 154.7 (65.5) 85.4 1.1 (44.9) 3 Housing Development Finance Corp. Ltd. 2.28 6.68% 37.1 98.5 (58.1) 88.5 41.5 (24.9) 4 HDFC Bank Ltd. 2.56 6.10% 53.8 81.4 (53.3) 78.5 43.6 (23.4) 5 Tata Consultancy Services Ltd. 2.31 5.13% 45.6 (0.2) (64.3) 228.4 61.7 (16.1) 6 ITC Ltd. 2.40 4.27% 26.0 34.2 (34.0) 53.2 44.8 (2.9) 7 Hindustan Unilever Ltd. 1.75 3.40% 11.6 10.9 (5.4) 10.8 22.8 9.9 8 ICICI Bank Ltd. 0.99 2.75% 54.9 55.4 (70.6) 104.5 36.0 (49.6) 9 Tata Motors Ltd. 1.20 2.53% 40.2 (7.4) (82.1) 421.7 71.5 (42.5) 10 Mahindra & Mahindra Ltd. 2.26 1.97% 79.9 6.7 (74.2) 311.7 49.7 (26.0) 11 Larsen & Toubro Ltd. 1.83 1.95% 59.1 224.7 (70.0) 127.0 22.6 (57.7) 12 State Bank of India 1.60 1.94% 39.6 113.7 (53.4) 84.4 28.9 (51.5) 13 Oil & Natural Gas Corp. Ltd. 1.11 1.86% 13.0 59.6 (56.3) 84.7 14.3 (33.1) 14 Wipro Ltd. 1.22 1.84% 32.7 (2.4) (64.1) 204.6 25.2 (31.5) 15 Bharti Airtel Ltd. 1.68 1.84% 85.0 77.6 (41.8) (3.7) 13.4 (19.4) 16 Axis Bank Ltd. 2.39 1.72% 66.6 131.5 (57.8) 105.1 42.0 (49.7) 17 Jindal Steel & Power Ltd. 7.29 1.59% 46.0 660.5 (76.0) 384.9 5.4 (46.5) 18 Dr. Reddys Laboratories Ltd. 2.73 1.51% 68.6 1.8 (48.3) 154.9 51.3 (20.1) 19 Sun Pharmaceutical Industries Ltd. 3.33 1.45% 45.9 51.3 (29.5) 48.2 67.3 (13.7) 20 Coal India Ltd. NA 1.43% NA NA NA NA NA (19.5) 21 GAIL (India) Ltd. 1.84 1.37% 0.1 132.7 (53.9) 109.9 28.7 (36.7) 22 Bharat Heavy Electricals Ltd. 1.46 1.32% 68.6 152.5 (57.3) 84.9 0.6 (56.7) 23 Bajaj Auto Ltd. NA 1.30% NA NA NA 371.5 82.1 (13.0) 24 Hindalco Industries Ltd. 0.75 1.21% 23.5 38.6 (78.6) 225.8 59.3 (60.4) 25 Sterlite Industries (India) Ltd. 1.47 1.13% 166.9 113.8 (79.6) 246.0 (9.8) (59.6) 26 Kotak Mahindra Bank Ltd. 3.27 1.11% 81.5 264.4 (77.7) 135.0 17.4 (19.6) 27 Power Grid Corp. of India Ltd. NA 1.05% NA NA (53.2) 38.5 (7.2) (14.3) 28 Cipla Ltd. 1.53 0.99% 43.7 (4.8) (28.9) 88.0 14.7 (27.3) 29 Tata Steel Ltd. 0.85 0.97% 29.0 146.3 (81.2) 198.2 14.4 (58.4) 30 Ambuja Cements Ltd. 1.65 0.90% 80.5 16.7 (61.6) 55.8 43.6 (8.5) 31 NTPC Ltd. 1.21 0.87% 23.7 105.9 (41.4) 36.3 (11.4) (32.6) 32 Infrastructure Development Finance Co. Ltd. 1.06 0.82% 7.7 231.0 (76.3) 141.6 23.0 (57.6) 33 Tata Power Co. Ltd. 1.70 0.80% 30.7 195.0 (58.8) 92.8 3.1 (46.2) 34 UltraTech Cement Ltd. 2.30 0.77% 161.1 3.9 (69.4) 150.1 23.1 (9.7) 35 Hero MotoCorp Ltd. 1.88 0.72% (9.8) 2.8 (6.6) 123.2 20.4 (19.2) 36 DLF Ltd. NA 0.70% NA NA (78.8) 34.1 (15.9) (47.2) Source: FactSet