The document discusses the recent correction in Indian equities and positions India favorably compared to other emerging markets. It makes three key points: 1) Indian equities witnessed a 12% correction in the last month driven by concerns over China's economic slowdown, but India's economy is better placed than its peers with lower inflation, strong reserves, and stable currency. 2) Unlike other emerging markets, India benefits from lower commodity prices and has favorable demographics, inflation, and growth forecasts, making it relatively resilient to emerging market slowdowns. 3) While China's economic slowdown has increased uncertainty, developed markets like the US and Europe are showing signs of stability and growth, offering confidence in the global economic

1. Azharuddin A Mansiya
CFA Level 3 Candidate, June 2016
Phone: +91 9930307208
E-mail: a.a.mansiya@gmail.com
Indian Equities: Victim of stereotyping EM
Asset class
28 September 2015
 What’s the Gist – Indian equities witnessed brutal correction in last one month, falling about
12% largely driven by concerns over China’s economic slowdown which was naively
stereotyped across the entire EM economies. Indian economy, although has few domestic
concerns and certainly nowhere close to what this correction signified, is still far better placed
than the rest of its peers in EM. The recent correction now gives intelligent investors chance
to take positions in Indian equities, which are positioned to outperform the asset class over
next few years.
 India, a gem among EM asset class… – India is best positioned among the entire pack of
Emerging Market asset class. Unlike other EM economies, India is net importer of
commodities, which stands to benefit from low commodity prices. Lower inflation and
favorable demographics along with strong foreign exchange reserves and low CAD, the
vulnerability for India is lowest among the EM asset class peers. Additionally, despite rupee
depreciating 5% YTD, it is the best performing currency in EM pack, which shows its strong
resiliency against EM slowdown. With India’s GDP growth forecast being the highest among
its peers, India shines as a gem for the Investors of EM asset class.
 …However China remains a drag on EM asset class… – After growing about 10% for three
decades, largely driven by fixed asset investments, China’s economy was bound to slow
down to a more sustainable growth rate. GDP grew at 7.4% in 2014 and it further slowed to
7% in 2Q15 and is expected to slow further over next few quarters. China had been leading
the entire EM for a decade now, and its sudden slowdown has caused panic and uncertainty
in the minds of investors about the entire EM economies, leading to higher risk premiums.
This could make investors to underweight EM asset class in their global equities portfolio,
affecting foreign fund flows in Indian equities due to asset allocation.
 … But DM economic growth looks promising – Developed market economies haven’t
been affected by the EM slowdown. The DM as a bloc has continued to record higher growth
led by US, which grew at 3.9% in 2Q15 and Euro economies too showed signs of gradual
growth in 2015, growing at 1.2% in 2Q15. Expectation of stability in US economic growth and
Euro area gradually recovering, gives investors confidence in global economic growth.

2.  Indian Equities: Victim of stereotyping EM asset class
 Page 2 | Azharuddin A Mansiya 28 September 2015
Table of Content
1. Market Sentimeter ----------------------------------------------------------------------------------03
2. Macro Economic indicators remain positive ----------------------------------------------04
3. Fundamentals and Valuations look supportive at current levels ------------------05
4. Global Factors remain fragile ------------------------------------------------------------------06
5. Portfolio Strategy ----------------------------------------------------------------------------------07
6. Annexure ---------------------------------------------------------------------------------------------08

3.  Indian Equities: Victim of stereotyping EM asset class
 Page 3 | Azharuddin A Mansiya 28 September 2015
Market Sentimeter
Indicators Current/1QFY16
Jan-
15/3QFY15
Outlook (for next
2 to 4 quarters)
Comments
Inflation 3.66% 5.11% Positive
Inflation has been on declining trajectory from the
turn of 2015, largely due to falling crude oil prices
and partly supported by falling food prices. Food
prices may increase in near future due to weak
monsoon, however with crude prices expected to
remain weak, inflation is expected to hover below
5.5% in near term.
Repo Rate 7.25% 8.00% Positive
RBI has cut 75 basis points so far with 3 cuts of 25
basis points each. Looking ahead, with low inflation
rate, there seems to be room for another 75-100
basis points cut over next 2 to 3 quarters.
IIP 4.20% 2.80% Positive
Industrial production growth has seen modest
increase since 2015, however below its long term
average growth of 6%. With interest rate cuts
expected to continue, industrial activity is expected
to grow at a higher pace.
GDP 7.00% 7.50% Stable
1QFY16 GDP numbers came in slightly below
expectation at 7%. The economy still appears in a
good shape considering the macro environment
coupled with government reforms in pipeline.
Although RBI is optimistically projecting 7.5%
growth for FY16, I see growth of around 7.2%-7.3%
for FY16.
Earnings growth 0.9% -1.6% Positive
Corporate earnings certainly were better in 1QFY16
compared to last 2 quarters. Earnings are expected
to improve from 3QFY16, once the benefit of rate
cut reaches the ground level.
Valuations (Sensex P/E) 20.3 20.4 Stable
Sensex is currently trading roughly at 20.3x trailing
4 quarters earnings, in line with its start of the year
valuation. Further re-rating and movement in
broad market depends on the earnings growth.
PEG ratio (over GDP growth) 3.0 3.5 Positive
While P/E multiplesuggest there is no real
improvement in the level of broad market
valuations despite more than 10% correction, PEG
ratio suggest otherwise, as it has improved
significantly from its peak and is now near its long-
term range.
US Fed rate 0.25% 0.25% Negative
Fed kept rates unchanged at near zero level for
more than 7 years. The inability to provide
concrete view and outlook on Fed's decision with
rates has only agrevated the global market
volatility.
US GDP 3.90% 0.60% Positive
US GDP has shown signs of improvement growing
at 3.9% in 2Q15 according to Bureau of Economic
analysis and is expected to continue to grow over
next few quarters.
Euro GDP 1.20% 0.90% Positive
Euro GDP grew 1.2% yoy although slightly
decelerated on QoQ basis at 0.4%. With ECB
continues its easing stance, Euro zone is expected
to gradually recover on the path of growth.
However, Germany, UK and France economic
conditions need to lead the way to further
recovery of the whole region.
China Growth 7.00% 7.30% Negative
China GDP growth was the slowest in last 7 years at
7% in 2Q15 and is expected to continue to
slowdown as it transitions from investment drive to
consumption driven economy.
MacroFundamentalGlobal

4.  Indian Equities: Victim of stereotyping EM asset class
 Page 4 | Azharuddin A Mansiya 28 September 2015
Macro Economic indicators remain positive
Source: RBI Source: RBI
Source: RBI
Source: RBI
3.7%3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
Jan12
Apr12
Jul12
Oct12
Jan13
Apr13
Jul13
Oct13
Jan14
Apr14
Jul14
Oct14
Jan15
Apr15
Jul15
CPI
Exhibit1: Inflationtrend has beenon downward trajectory
-10%
-5%
0%
5%
10%
15%
Apr2008
Oct2008
Apr2009
Oct2009
Apr2010
Oct2010
Apr2011
Oct2011
Apr2012
Oct2012
Apr2013
Oct2013
Apr2014
Oct2014
Apr2015
IIP-3mmayoy
Exhibit3: IIP grew at 4.2% in July 2015 withCap goodsthe
biggestcontributor
IIP
7.0%
7.3%
7.5%
7.8%
8.0%
8.3%
8.5%
8.8%
3.0%
5.0%
7.0%
9.0%
11.0%
13.0%
Jan12
Apr12
Jul12
Oct12
Jan13
Apr13
Jul13
Oct13
Jan14
Apr14
Jul14
Oct14
Jan15
Apr15
Jul15
Reporate
CPI
Exhibit2: Repo rate vs Inflation:Repo rate exprectedto be
cutby 25bps more on Sept 29 meet
CPI Reporate
-10%
-5%
0%
5%
10%
15%
20%
25%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
IIP-quarterlyaverageyoy
GDP%
Exhibit4: GDP growth vs IIP
GDP IIP

5.  Indian Equities: Victim of stereotyping EM asset class
 Page 5 | Azharuddin A Mansiya 28 September 2015
Fundamentals and Valuations look supportive at current levels
Source: BSE India Source: BSE India
Source: Bloomberg
Source: Bloomberg, BSE India
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
100
150
200
250
300
350
400
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
YoY%
EPSinRs
Exhibit5: SensexEPS trend; earningsappear to have
bottomedin4Q15
ActualEPS YoY%
10.0
13.0
16.0
19.0
22.0
25.0
28.0
Apr-06
Oct-06
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
PE
Exhibit7: SensextrailingPE likelyto range above its historical
average of 19x
P/E Avg +1STD -1STD
12
14
16
18
20
22
24
100
150
200
250
300
350
400
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
PE
EPSinRs
Exhibit6: SensextrailingPE risesas earningscontinue to rise
ActualEPS Trailing 4Q P/E
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Apr-06
Oct-06
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
PEG
Exhibit 8: Sensex PEG ratio trading near its long term average while
forward PEG even lower than trailing at 7.2% GDP estimate
PEG-trailing Avg +1STD
-1STD PEG-forward

6.  Indian Equities: Victim of stereotyping EM asset class
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Global Factors remain fragile
While US economy is showing promising signs…: According to bureau of economic analysis, US
GDP growth rate was 3.9% in 2Q15, higher than 1Q15 growth rate of 0.6%. The increase in real GDP in
the second quarter primarily reflected positive contributions from Private Consumption Expenditure
(PCE), exports, non-residential fixed investment, state and local government spending, and residential
fixed investment. Additionally, retail sales (one of the key measure of growth) grew 0.2% in August after
rising 0.7% in July. US residential sales were also up by 5.7%, highest since February 2008. Steady job
gains and cheaper borrowing costs are bolstering demand for new homes, particularly as the supply of
previously owned properties is still scant. Unemployment too has been at its lowest since October 2009 at
5.1% in August. Looking ahead, with all these macro factors showing signs of revival and steady growth
in US Economy, the world’s largest economy is expected to lead the global growth in coming quarters.
…rising Fed rate could pose problem in short term: Although favorable macro economic data pointing
towards hike in interest rates, Fed kept its rate unchanged yet again at 0.25% (close to 0% level
maintained for 7 years). Fed unwillingness to hike rate was attributed to the current global market
instability and concern over US inflation sluggishness. However, Fed indicated that they still keep the
door open for hiking rates before the end of 2015, which will mean short term volatility in Emerging
markets due to capital flight to US dollar treasuries earning higher real rates.
Euro area economy is still in the early phase of recovery…: Euro area GDP grew at 1.2% yoy in
2Q15 compared to 0.9% in 1Q. However, slowed on QoQ basis at 0.4%. However, key to further growth
depends on the Europe’s top 3 economies, Germany, UK and France and monetary easing measures.
Looking ahead, economic growth will gradually strengthen, supported by lower oil prices, the depreciation
of the euro, improving financial conditions, additional stimulus from further monetary expansion and a
pause in fiscal adjustment. Fiscal policy will be broadly neutral, which is appropriate in the short run as
the recovery is still weak and uncertain. The very supportive monetary stance should continue as
planned, as inflation is still well below 2% and growth is weak.
…while Chinese economy is slowing down: Chinese economy is slowing down as it is undergoing
structural shift from investment driven to consumption driven economy. China GDP growth slowed down
to 7% in 2Q15 and is expected to further slowdown. Looking ahead, world’s second largest economy will
gradually make this structural shift by unwinding its leverage and driving up the domestic consumption
which will take few years. However, I do not expect a recession or a growth rate falling below 5.8%. That
said, key to soft shift lies in careful fiscal and monetary policy decisions as growth rate in consumption is
unlikely to compensate immediately, the fall in growth of investments in the economy.

7.  Indian Equities: Victim of stereotyping EM asset class
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Portfolio Strategy
Investment theme: Due to slower than expected pace in government reforms, slower earnings recovery
and delay in capex spending, along with global factors resulting in weakening Indian rupee, my portfolio
investment focus shifts from domestic cyclicals to Interest rate sensitive and export focus sectors.

8.  Indian Equities: Victim of stereotyping EM asset class
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Annexure
Past report references
i. Indian Equities-Seeking Multi-year Alpha, January 6 2015
ii. Indian Equities-Cyclicals poised for strong recovery, February 27 2015
1) Banks - Fundamentals snapshot
Source: Company data, RBI
2) Banks – Valuations snapshot
Source: Company data, RBI
3) Consumer Durables - Fundamentals snapshot
Source: Company data, RBI
Banks
Repo rate
chng period
Repo rate
change (basis
points) Impact period
NPA trend
(-1 to +1) NIM ROA
Rate cut cycle 3Q09-4Q10 -475 4Q09-1Q11 -0.2 3.2 1.5%
Rate increase cycle 1Q07-2Q09 250 2Q07-3Q09 0.1 2.8 1.2%
Historical Since FY07 7.15% NA 0.0 3.2 1.5%
Current NA 7.75% 1QFY16 -0.3 3.6 1.8%
Macro-Economic indicator Fundamental - KPI
Anx 2
P/B Avg repo rate P/B-trailing P/B-2Q forward BV chg (x)
Falling Interest rates 5.51% 2.3 1.9 1.5
Rising interest rates 7.54% 3.7 3.1 2.4
Historical (Since FY07) 7.15% 2.9 2.5 NM
Current 7.25% 3.3 ? 1.1
Valuation Metrics - Banks
Consumer Durables
Repo rate
chng period
Repo rate
change (basis
points)
Impact
period
Revenue
growth
EBITDA
mgn
Interest
coverage ROE
Rate cut cycle 3Q09-4Q10 -475 2Q10-3Q11 31% 12.3% 72.7 64.8%
Rate increase cycle 1Q07-2Q09 125 4Q07-1Q10 13% 9.5% 6.0 62.6%
Historical Since FY07 7.15% NA 20% 10.8% 23.2 54.4%
Current NA 7.25% 1QFY16 30% 11.7% 29.6 29.8%
Macro-Economic indicator Fundamental - KPI

9.  Indian Equities: Victim of stereotyping EM asset class
 Page 9 | Azharuddin A Mansiya 28 September 2015
4) Consumer Durables – Valuations snapshot
Source: Company data, RBI
5) Auto - Fundamentals snapshot
Source: Company data, RBI
6) Auto – Valuations snapshot
Source: Company data, RBI
P/E Period P/E-trailing P/E-NTM rolling EPS chg (x)
Rate cut cycle 3Q09-4Q10 9.5 5.8 2.9
Rate increase cycle 1Q07-2Q09 7.7 11.0 1.3
Historical Since FY07 16.4 14.1 NM
Current Sep-15 32.6 ? 3.5
Valuation Metrics - Consumer Durables
Autos
Repo rate
chng period
Repo rate
change (basis
points) Impact period Volumes
EBITDA
mgn ROE
Rate cut cycle 3Q09-4Q10 -475 1Q10-2Q11 34% 11.7% 32.8%
Rate increase cycle 1Q07-2Q09 250 3Q07-4Q09 0% 10.5% 23.5%
Historical Since FY07 7.15% NA 3% 12.0% 26.3%
Current NA 7.25% 1QFY16 10% 16.4% 19.4%
Macro-Economic indicator Fundamental - KPI
P/E Period P/E-trailing P/E-NTM rolling EPS chg (x)
Rate cut cycle 3Q09-4Q10 19.8 13.8 3.1
Rate increase cycle 1Q07-2Q09 12.7 14.5 0.8
Historical Since FY07 18.7 15.8 NM
Current Sep-15 20.7 ? 1.1
Valuation Metrics - Autos

10.  Indian Equities: Victim of stereotyping EM asset class
 Page 10 | Azharuddin A Mansiya 28 September 2015
Disclaimer: The views mentioned in this report are based purely on my own independent analysis, research and understanding.
None of the content including data and views are based on any of the research reports of any brokerage houses. Model portfolio
composition is dynamic in nature and is subject to change as per the changes in the macro-economic situations and risks
associated. Investors are requested to take advice before acting upon any investment ideas mentioned in this report.