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Table of Contents
Strategy 2
Angel Research Model Portfolio 15
2QFY2011 Sectoral Outlook 16
Automobile 26
Banking 29
Capital Goods 32
Cement 35
FMCG 38
Infrastructure 41
Logistics 44
Metals 47
Oil & Gas 50
Pharmaceutical 53
Power 56
Real Estate 59
Retail 62
Software 65
Telecom 68
Note: Stock Prices as on October 1, 2010.
Refer to important Disclosures at the end of the report 1

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Endurance to pay... Strong surge in FII inflows, DIIs turn sellers
A quarter of handsome gains after a year... The quarter witnessed one of the strongest-ever quarterly inflows
The Indian bourses picked up significant momentum during from FIIs in the last three years. FIIs pumped in almost
2QFY2011. This resulted in markets breaking away from the US $12bn into equity markets, taking the total investments to
tight range, which they were confined to for the last three US $14bn in 1HFY2011.
quarters. The Sensex grew by 13.4% qoq during the quarter, The attractiveness of India as an investment destination can be
reporting the highest quarterly returns after an 18.2% qoq rise gauged by the fact that India accounts for ~50% of the fund
in 2QFY2010. The strong surge came on the back of strong inflows in Asia (ex-Japan) YTD in CY2010 in comparison to
inflows, which continue to chase emerging markets on account 25% during the same period in 2009. India is well on the path
of their high growth prospectus, in comparison to concerns of reverting to its high-growth orbit in the current uncertain
regarding the sustainability of the recovery underway in the global environment. Thus, India would continue to attract global
developed world. fund inflows, driven by its resilient domestic economy. Back
home, DIIs turned into net sellers, with net sales of Rs23,800cr
Exhibit 1: Rise in Sensex (qoq)
(%)
(US $5bn) in 2QFY2011, thus being net sellers of Rs20,000cr
60 in 1HFY2011.
50
40 Exhibit 3: Net fund inflows
30 60
20 50
10 40
(‘000 Rs cr)
30
0
20
4QFY2006
1QFY2007
2QFY2007
3QFY2007
4QFY2007
1QFY2008
2QFY2008
3QFY2008
4QFY2008
1QFY2009
2QFY2009
3QFY2009
4QFY2009
1QFY2010
2QFY2010
3QFY2010
1QFY2011
2QFY2011
4QFY2010
(10)
10
(20)
-
(30)
1QFY2008
2QFY2008
3QFY2008
4QFY2008
1QFY2009
2QFY2009
3QFY2009
4QFY2009
1QFY2010
2QFY2010
3QFY2010
4QFY2010
1QFY2011
2QFY2011
(10)
Source: BSE (20)
(30)
...Indian markets amongst the outperformers
FII DII
After a quarter of listless performance, the global equity markets Source: Bloomberg
rallied during 2QFY2011. Markets gained almost ~11% qoq,
Global economy on the path of recovery,
as the risk-appetite was back after concerns regarding sovereign
developing markets at the forefront
defaults in EU eased off. Developed markets, on an average,
posted qoq gains of 10%, with the exception of Japan, which The global activity is recovering at varying speed,
almost remained flat. Among the emerging markets, Indonesia tepidly in many of the advanced economies, but strongly in
continued to outperform, followed by Brazil and India. China, most emerging and developing economies. During 1HCY2010,
though witnessed a bounce back, continued to underperform the global economy grew at a faster-than-expected pace;
its peers. With this, the Indian markets grew by 17.2% yoy, ahead however, growth across economies remained uneven. While
of China (down 4.4%), while being outpaced by Russia and the advanced economies are yet to show a sustained growth
Indonesia, which gained 30.4% and 41.9% yoy, respectively. post the global financial crisis, emerging and developing
economies have expanded at a much faster rate and almost
Exhibit 2: Performance of key global markets
(%)
reached their pre-crisis levels. Overall, IMF has advanced its
50 real global GDP growth expectations to 4.6% in 2010, with
40 advanced economies expected to log in 2.6% growth, while
30
developing economies are expected to post 6.8% growth
20
(accounting for ~50% of global growth).
10
0
China
India
Brazil
Indonesia
HongKong
Korea
Singapore
US Nasdaq
Malaysia
UK FTSE
Japan
US Dow
Russia
Taiwan
(10)
(20)
yoy qoq
Source: BSE, Bloomberg
Refer to important Disclosures at the end of the report 2

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Exhibit 4: Global GDP growth trend During the quarter, emerging and developing economies
10.0 6.0
reported a sharp recovery, post the downtrend in 2008, driving
5.1 5.2
4.9
8.0 4.8
3.6
4.5 4.6 5.0
the overall global economic growth. China and India, the key
(% yoy real growth)
(% yoy real growth)
6.0
2.9
4.0
economies in the region, surpassed their pre-crisis growth
2.3 3.0
4.0 3.0
trajectory. Although the Chinese economy's growth moderated
2.0 2.0
in 2QCY2010, the economy continues to log in double-digit
0.0 1.0
growth in spite of its high dependence on external economies.
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010E
(2.0) 0.0
(4.0) (1.0)
China is expected to end CY2010 with 10.5% GDP growth.
(0.6)
Advanced Economies Developing Economies World (RHS)
India is also back to its high growth trajectory, as indicated by
Source: IMF the 8.6% and 8.8% yoy growth rates posted by the economy in
1QCY2010 and 2QCY2010, respectively. With normal
Amongst the advanced markets, the US, which has witnessed monsoons and a broad recovery, the Indian economy is well
an uptrend since 3QCY2009 and posted strong 3.7% qoq set to end FY2011 by registering 8.5% GDP growth. Apart from
(annualised) growth in 1QCY2010, witnessed a softening in India and China, the other emerging markets have also
GDP growth to 1.6% qoq (annualised) in 2QCY2010, thus witnessed strong traction in CY2010 so far.
raising concerns of the economy heading towards a double
dip. However, a closer look at the numbers reveals that private India having the most compelling growth drivers
final demand (excluding inventory) has grown at healthy Globally, at this juncture, India unquestionably has the most
4.4% qoq (annualised), though the main beneficiaries of the compelling combination of growth drivers-favourable
same were businesses outside the US. However, given that demographics, high domestic savings, globalisation, scope for
consumption (70% of the GDP) continues to grow at ~2%, below rapid productivity improvement and sustained policy reforms.
the ~3% yoy growth before the pre-crisis levels and high This would result in a virtuous cycle of productive job
unemployment rates, the US Fed has kept the option of further creation-income growth-savings- investments, thereby leading
monetary stimulus open, if the economic condition deteriorates. to higher growth. Thus, India has all the levers to accelerate its
On the other hand, the Euro zone surprised positively in sustainable real GDP growth from 8-9% to 9-10%. For the
2QCY2010, as against expectation of moderation in growth 12th Plan, the government is targeting 10% real GDP growth,
on the back of the sovereign debt crisis. The region posted 4% which we believe is achievable.
qoq (annualised) growth on the back of strong domestic Favourable demographics
demand. However, growth in the region could moderate on
the back of the high base effect and impact of austerity measures It is a known fact that there is an undeniably strong correlation
undertaken. between consistent high growth and a combination of favourable
demographics and high domestic savings. For instance, the
Japan, on the other hand, witnessed moderation in 2QCY2010,
working population in East-Asian countries grew at a CAGR of
after posting robust growth in 1QCY2010.
2.5-3.5% between 1970 and 2005. China alone added 41cr
Exhibit 5: Growth of key economies people to its workforce during that period, at a 2.5% CAGR,
14.0
which was responsible for a corresponding portion of the
12.0
11.9
10.5 country's 8.5% CAGR in GDP .
10.3
(% yoy real growth)
9.4 9.0
10.0
8.6 8.8 8.8 India's median age stands at 25 years, which is close to where
8.0 7.1
East-Asian economies were at their respective growth inflection
6.0 4.7 5.2
4.0 3.3 3.1
4.3 points. Our working-age population is set to grow at one of the
2.4 3.0 2.4 2.4
2.0
1.9
0.8 1.0 highest rates of 1.3% CAGR over the next 40 years (and an
0.0 even faster rate of 2% until CY2025). This will lead to a
US Euro Zone Japan China India Brazil Russia staggering addition of 36cr people in the working-age bracket.
1QCY2010 2QCY2010 2010
In addition, the increasing participation of women in the
Source: Bloomberg, IMF
workforce will provide a further fillip to our growth rate. This is
in contrast to China, which is expected to witness a decline in
its working-age population by 4.8cr people, Russia by 2.6cr
people and G7 countries by 0.9cr people.
Refer to important Disclosures at the end of the report 3

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Exhibit 6: India to witness largest workforce accretion labour pool to urban areas are further driving productivity
growth. With sustained progress on the reform front, we believe
Additional Working Additional Working
Population (Cr) Population (Cr)
40 12
a heavy mix is in place to take India's growth trajectory to the
aspired levels of over 9%.
30 9
20 6
High domestic savings and investments
10 3
Over 1970-2005, savings and investment rates averaged
0 0
30-40% of the GDP in East-Asian economies. This was the other
-10 India (LHS) China Brazil Russia USA Japan -3
important ingredient that went into their high growth, as high
2008-2015 2015-2025 2025-2050
savings and investment rates by the domestic private sector
Source:UN
supported a high capital output ratio.
Exhibit 7: Median age trend would continue to favour On an average, over FY2002-06, India received ~US $15bn
2005 2015E 2025E 2035E 2045E 2050E
in Forex inflows and still maintained real GDP growth of 6-7%.
Emerging Economies
The reason behind the same has been strong internal accruals
Brazil 27.0 31.3 35.8 39.9 43.8 45.6
in the form of gross domestic savings. India, which is amongst
China 32.1 35.6 38.9 42.8 44.9 45.2
the highest savers in the world, has seen savings increase from
India 23.7 26.5 29.9 33.5 36.9 38.4
21-22% in the 1990s to 36% in FY2008, which has set pace for
Indonesia 26.5 30.1 33.8 37.0 39.9 41.1
higher GDP growth. The high savings were on the back of
Russia 37.3 38.9 41.7 45.3 44.5 44.0
declining dependency ratio and reduction in overall government
Developed Economies
deficit. Going forward, the dependency ratio is likely to improve
USA 36.0 37.2 38.7 40.3 41.2 41.7
further, which, along with improving government finances, would
UK 38.9 40.3 40.8 42.0 42.4 42.5
continue to drive structural rise in overall savings, consequently
Japan 43.1 46.6 50.6 53.5 54.9 55.1
driving investments and overall growth by over 9%.
Germany 42.1 46.4 48.8 50.3 51.7 51.7
France 38.9 41.3 42.9 44.0 44.4 44.8 Exhibit 8: Dependency ratio and savings rate
Source: UN 64.0 40
62.0 35
Significant scope for productivity improvement 60.0 30
58.0 25
The large gap in per capita incomes between developed and 56.0 20
54.0 15
emerging economies mainly reflects differences in productivity 52.0 10
levels. For instance, per capita income in the US has grown at 50.0 5
48.0 0
an average real rate of ~2% per annum since the past
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
150 years. This can be taken as a good benchmark for
Working Population (as % of Total Population) -LHS
innovation-led growth. Emerging economies are in a position Savings Rate ( as % of GDP) - RHS
to grow at a faster rate, as they progressively catch up with Source: UN,RBI
developed economies on the productivity front, until innovation
barriers slowdown their growth rate. This has been the key driver Globalisation
behind the rapid growth rates witnessed successively in Japan, Over the last couple of decades, growing globalisation has
South Korea and, more recently, China. Of course, capitalist widened export opportunities. However, India's integration with
reforms that essentially liberalised these economies created the the global economy (which started in 1990s unlike its peers
necessary platform for successive economies to take off one where the process started in 1980s) has kept India's dependence
after the other. on exports (contributed ~23% of GDP in 2008) lower than its
In India too, productivity levels are increasing across the board peers in the emerging markets, including China and South Korea
and yet we are starting with such a small base in per capita whose exports contribute almost 37% and 53% of GDP (2008),
income (at US $1,030, less than 1/45th of US per capita income respectively. Given the disparity between the per capita income
in nominal terms and less than 1/18th in PPP terms) that even of developed markets vis-à-vis developing countries, exports
after four decades, this productivity-led growth will be far from would continue to increase. A case in point is Germany, a
losing steam. Increasing literacy levels and migration of the developed country that has witnessed a significant jump in its
Refer to important Disclosures at the end of the report 4

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per capita income on the back of exports. Germany's GDP needs to continue to focus on implementing new reforms to
improved from 25% in 1990 to 47% in 2008. Similarly, among unleash its full potential.
the emerging markets, like China, a part of overall growth has Some of the structural reforms expected are:
been on the back of increased exports. As a matter of fact, in
Tax reforms: The proposed Direct Tax Code (DTC) on the direct
1970s, India and China were enjoying almost equal market
tax front and Goods and Services Tax (GST) on indirect taxations
shares in exports. Thereon, China's thrust on exports aided the
would widen the tax base and lead to higher tax collections.
country's high growth and it emerged a main player in the
The GST would mark a transition from the multiple rates of
exports market.
indirect taxes and different types of indirect taxes to a single
Exhibit 9: Exports as a percentage of GDP unified tax across goods and services, which would widen the
60
52.9 tax base and would result in proper allocation of resources,
50 thus improving overall productivity. On the other hand, the DTC
40
38.6
36.6 aims to broaden the tax base and reduce exemptions. DTC is
32.1 32
30 26.9
23.3
likely to be implemented by April 2012. Both these bills are
22.7
20 likely to augment tax collections by ~2% of GDP .
13.6 13.2
10.6 9.9
10
2.6 3.8
4.6 5.7 6.2 5.3 Enhanced investments in infrastructure: The 12th plan envisages
0 infrastructure investments in FY2013-17 cumulatively at US $1trn
1970 1975 1980 1985 2000 2008 compared to US $494bn in FY2008-12, taking infrastructure
Korea Rep. China India
spending to ~10% of GDP This seems possible given that
.
Source: World Bank
infrastructure spending will increase to 8.4% of GDP in FY2012
Accordingly, India has a lot of potential to increase its exports, from 7.5% of GDP in FY2009. Moreover, high savings and
as it is well below its major exporting peers in terms of per private sector participation (expected to be 50% of infrastructure
capita income. Though India's trade has accelerated post the spend) would aid the process.
liberalisation, leading to increased market share (up 0.7% Disinvestment: The government is looking at disinvestment to
during 1990-2009), India's share in total global exports boost its resources. For FY2011, government targets raising
continues to be a minuscule 1.2% (2009). Thus, India has Rs40,000cr (0.6% of GDP) from divestments, compared to an
significant potential to increase its market share and scale up estimated Rs25,000cr (0.4% of GDP) in FY2010.
its operations to accelerate growth and improve productivity,
Fiscal consolidation: The government has set a roadmap for
thus hastening overall savings and investments.
reduction in fiscal and revenue deficit over FY2010-15.
Exhibit 10: India v/s other key economies According to the roadmap, the consolidated (centre plus state
(in $)
50,000 12.0% government) fiscal deficit is expected to reduce to 7.3% of GDP
45,000
40,000
10.0% by FY2012 and 5.4% of GDP by FY2015, mainly aided by
35,000
30,000
8.0% improved tax collection. This is expected to enable the
25,000 6.0%
government to reduce its consolidated public debt to GDP to
20,000
15,000
4.0%
76.6% by FY2012 and to 67.8% by FY2015. The same would
result in reducing the crowding out, leading to improved savings
10,000
2.0%
5,000
0 0.0%
and investments.
Mexico
Russia
Italy
United States
Germany
South Korea
Canada
Brazil
Kingdom
India
France
Japan
China
United
Exhibit 11: Targeted improvements in public finances
PPP (Per Capita income, 2009) (LHS) Exports( Market Share) (RHS)
12.0 80
Source: Angel Reserach 78
9.9
10.0
76
Momentum on reforms to continue 8.3
(% to GDP)
8.0 7.3 74
6.7
6.7 5.4 72
6.0 5.4
Since 1990-91, India has stepped up on reforms, which has 5.7
4.8 4.2 3.0
70
4.0 68
accelerated the country's overall growth momentum. Recently, 3.0
66
the government showed its commitment towards reforms
2.0
3.2 2.6 2.5 2.5 64
2.4 2.4
through hiking urea prices by 10%; nutrient-based subsidy; - 62
FY2010 FY2011E FY2012E FY2013E FY2014E FY2015E
de-regulation of petrol prices and partial decontrol of diesel State Deficit (LHS) Centre Deficit (LHS) Gross Debt to GDP (RHS)
prices; and APM gas price de-regulation. Going forward, India Source: 13 Finance Commission Report
th
Refer to important Disclosures at the end of the report 5

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Near-term macros too in fine fettle continues to exhibit strength. IIP growth in July 2010, at 13.8%,
continues to remain strong. Even after adjusting the IIP numbers
GDP growth back in high gear
for the base impact and taking a CAGR over a two-year period,
The Indian economy, after been straddled with 6-7% GDP growth IIP growth was around 10.4%, well above the 15-year average
during the last two years, is well placed to revert to its of 7.0%. Until July FY2011, IIP growth has been at around
high-growth phase of 8-9%, with all the three components 11.4%. Strong traction in auto sales—both commercial vehicles
of growth engines—agriculture, manufacturing and and passenger vehicles (over 25% growth in FY2011 until
services— contributing to its growth momentum. August); continued order inflows; and steel consumption (up
10% yoy in FY2011 until August) point towards continued
Exhibit 12: India's real GDP growth trend firmness in the manufacturing sector.
60,00,000 12
50,00,000 9.5 9.7
9.2 9.0
10 Exhibit 14: IIP growth trend (2-year rolling CAGR)
8.5
(%)
40,00,000 7.4 8
(Rs cr)
14.0
30,00,000 6.7 6 12.0
20,00,000 4 10.0
8.0
10,00,000 2
6.0
0 0
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E 4.0
Services (LHS) Manufacturing (LHS) Agriculture (LHS) YoY Growth (RHS) 2.0
Source: Bloomberg, Angel Research -
Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
Feb-99
Aug-99
Feb-04
Aug-04
Feb-05
Aug-05
Feb-09
Aug-09
Aug-96
Feb-06
Aug-06
Feb-98
Aug-98
Feb-08
Aug-08
Feb-97
Aug-97
Feb-07
Aug-07
Feb-00
Aug-00
Feb-10
The trend is already visible, as indicated by the 1QFY2011 Source: Bloomberg, Angel Research
GDP growth numbers. For 1QFY2011, India’s GDP grew by
8.8%, in line with growth posted during FY2006-10. This is the Growth in the services sector, which contributes ~57% of the
highest growth rate reported by the Indian economy since GDP is expected to remain robust despite moderation in
,
4QFY2008. Growth in 1QFY2011 was driven by strong non- government-linked community and social services. Growth in
agriculture GDP growth, which continued its strong momentum, the sector would be mainly driven by improvement in the hotel,
registering 9.9% growth, much higher than the 7.7% and 8.8% transport, communication, finance and real estate sectors (which
growth recorded in FY2009 and FY2010, respectively. Services contribute ~70% of the service sector’s GDP), all of which would
and the manufacturing sectors (non-agricultural components) expand at a faster pace as compared to that in FY2009-10 due
registered growth of 9.7% and 10.3%, respectively. Agriculture to revival in household demand and global economy.
also bounced back during the period, posting 2.8% growth,
On the expenditure front, private consumption, which posted
reporting the strongest performance in the past one year.
an improvement over the last quarter, remained lower at 3.8%
in 1QFY2011. This can be attributed to lower agricultural growth
Exhibit 13: Growth in 1QFY11 surpasses FY08-10 trend
12.0
and high inflationary pressures. Going forward, with agriculture
9.5
10.5 10.3 10.6
9.7
expected to bounce back and inflationary pressures expected
10.0 9.1
to subside, overall private consumption is expected to contribute
8.8
(% yoy Real Growth)
8.0 7.1
6.5 to growth momentum. Another key component, gross fixed
6.0
4.5 capital formation (at 7.6%) has grown at an average run rate
4.0
2.8 of 7.2% in FY2010; however, with demand picking up, high
2.0
0.9 capacity utilisation across industries (auto, cement, steel and
0.0
power, among others) and lean corporate balance sheets have
GDP Agriculture Manufacturing Services
FY2005-08 CAGR FY2008-10 CAGR 1QFY2011
led to an upturn in the capex cycle. This, along with the strong
Source: CSO order book position of capital goods and infrastructure
companies, points towards continued healthy growth of gross
Going forward, the firm trend in GDP growth is likely to continue. fixed capital formation.
Rainfalls at 104% of long-period averages (LPA) until September
22, 2010, in line with expectations, would aid agriculture growth
to bounce back. IIP the cornerstone of manufacturing activity,
,
Refer to important Disclosures at the end of the report 6