Page | 1 | PHILLIP SECURITIES RESEARCH (SINGAPORE) MCI (P) 022/11/2014 Ref. No.: SG2015_0004

India

AT INFLECTION POINT: MODI NEEDS MORE THAN LUCK

MACRO | ECONOMY | Equity Market

13 January 2015

Global Macro, Equities, Phillip Securities Research OW = Overweight ; NW = Neutralweight ; UW = Underweight

Present Prior

G3 US LT OW

ST NW

LT OW

ST NW

Fidelity - America

Legg Mason - Clearbridge US Aggressive Grow th

Legg Mason - Royce US Small Cap Opportunity

SPDR S&P500 (SGX) - S27

Lyxor NASDAQ (SGX) - H1Q

iShares Russell 2000 (NYSE Arca) - IWM

Europe NW NW Templeton - European

Schroder - European Equity Alpha

Schroder - ISF European Smaller Companies

DBX Tracker MSCI Europe - IH3

VGK Vanguard European Stock Index

Japan OW OW Aberdeen Japan Equity Fund

Lion Global Japan Grow th Fund

Nikko AM Shenton Japan Fund

DB X-trackers MSCI Japan ETF – LF2 (SGX)

iShares MSCI Japan – EWJ (NYSE/Amex)

WisdomTree Japan Hedged Equity – DXJ

Asia ex-Japan China/HK OW OW Fidelity Greater China

First State Regional China

Schroder Greater China

db x-trackers MSCI China TRN Index 1C

(LG9.SGX)

db x-trackers CSI300 Index ETF 1D (KT4.SGX)

ChinaAMC CSI 300 ETF (3188.HK/83188.HK)

iShares FTSE A50 China (2823.HK)

CSOP FTSE China A50 ETF (2822.HK/82822.HK)

India OW OW Aberdeen - India Opportunities SGD

Fidelity - India Focus A SGD

Lion Global - India Acc SGD

MSCI India (I98.SGX)

DBX India (LG8.SGX)

Indonesia OW OW Aberdeen Indonesia Equity

Fidelity Indonesia A USD

Lyxor Indonesia10US$x@ (P2Q.SGX)

DBXT MSINDO 10US$x@ (KJ7.SGX)

Ishares MSCI Indonesia ETF (EIDO.NYSEARCA)

Market Vectors Indonesia Index ETF

(IDX.NYSEARCA)

Thailand NW NW Fidelity Thailand Fund

Aberdeen Thailand Equity Fund

Lyxor ThaiSET 10US$x@ (P2P.SGX)

Ishares MSCI Thailand Capped ETF

(THD.NYSEARCA)

X DBMSCITHAI (3092.HK)

Malaysia NW NW Lion Global Malaysia Fund

Aberdeen Malaysian Equity Fund

db x-trackers MSCI Malaysia TRN Index 1C

(LG6.SGX)

XIE Shares Malaysia (FTSE BM KLCI) ETF

(3029.HK)

Singapore NW NW DWS Singapore Small/Mid Cap Fund

Nikko AM Singapore Dividend Equity

Amundi Singapore Dividend Grow th Fund

SPDR STI ETF (ES3.SGX)

Nikko AM STI ETF (G3B.SGX)

Source: PSR (as at 16 Dec 2014)

Rating

CountryRegion Unit Trust ETF

Executive Summary We see Prime Minister Modi’s efforts in pushing through his agenda of removing

bottlenecks to investment and fiscal responsibility. Improved macro stability (a fall in inflation and smaller current account deficit, energy

subsidy reform), decline in global oil prices and reform announcements continue to support the Indian equities. An economic recovery should drive earnings and structural reforms could trigger a further re-rating of Indian equities.

Similarly to China, Indian government set to roll out divestments of state-owned enterprises (SOEs), bringing greater retail participation and increase efficiency, unlocking greater shareholders value. Reforms would also open up India to more foreign funds.

Growth opportunities in sectors which benefits from the reform, in particular, manufacturing, infrastructure, financials, pharmaceuticals and healthcare, and telecommunications.

Some of the headwinds the country may face: in the form of political risks, as the Government does not have a majority in the Upper House, bank recapitalization and asset quality, geo-political risks and market turbulences due to US Fed hiking rates.

In view of these backdrop, we maintain OWs on India, but cautious on the headwinds.

Soh Lin Sin (+65 6531 1516)

sohls@phillip.com.sg

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Overview When Prime Minister Narendra Modi took oath on May 26 after his Bharatiya Janata Party (BJP) won the general elections by landslides, from the previous Congress party-led government, he inherited a mismanaged economy with high inflation, sliding rupee, stalled reforms and a growing budget deficit fuelled by soaring prices for oil and other imported commodities. He pledged to increase energy production, revive investment to raise the pace of growth from near a decade low, and to narrow the budget deficit to a seven-year low of 4.1% of GDP in the fiscal year that began April 1. Within seven months, he eliminated state controls on diesel prices – the first time in over a decade, and increased natural gas prices, mollifying critics and bolstering his reputation as a reformer. Petroleum subsidies account for one-quarter of India’s 2.6 trillion rupee subsidies bill. The cost of diesel subsidy program was borne by state oil producers, refiners and the national government: the price control had required state refiners to sell diesel fuel at a loss, and they were only partially compensated through reduced crude pricing and government payments. On fiscal front, the fiscal savings over time can then be reallocated more efficiently and channelled for more productive uses, such as public investment. On economy activities wise, the more market-based energy pricing would help to increase companies’ competitiveness, attract more foreign and domestic investment in India’s fuel sector and spur more interest in auctions for oil and gas exploration blocks that government is aiming to hold, thus increasing energy supply. State refiners would have more capital to invest in infrastructure and the ability to pass infrastructure costs on to consumers. Nevertheless, thanks to the global plunge in oil prices, there is no immediate shock to consumers. Falling oil prices not just came at perfect timing for the Modi government, in fact, it is the biggest boon for the Indian economy. India’s energy shortage worsened when the Supreme Court of India scrapped all but four of 218 coal blocks allocated by the government over the past two decades, following a controversy over the allocation of coal blocks. The fall in global oil prices would enable India to import more crude oil at a lower cost for its industrial sector – partially offsetting the energy shortage. In short, cheaper oil would mean lower costs of production, higher consumer spending, and an overall rise in investment and growth. On the other hand, we see inflation has come down and current account improved. The Modi-mood, even prior to the election, has brought international investors pouring funds into equities, sending the India’s benchmark stock index to its record high and making it one of the world’s best performers this year. However, cheaper oil will not rejuvenate the Indian growth story on its own. Growth data disappoints, whether of credit, GDP or exports, while investment has yet to regain the momentum it lost in 2011-2012, and about 40 million Indians are unemployed as per the Labour Bureau. The real test to Modi’s administration will be in the next few months, on how to retain trust of his supporters. Seven months after Modi’s party became the first in three decades to win a lower-house majority, the government has not announced any bold economic reforms needed to pull India out of an economic growth of under 5% for two straight years. Further delays risk damping Modi’s image as a reformer.

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For India to revive its economy, much greater structural reforms are needed: issues related to land, labour and tax reforms, policy regime related to infrastructure sector and ease of doing business, where painstaking bureaucratic red tape discourages investors. All this needs tackling at the policymaking level.

On Dec. 23, India ended its month long parliament session. Before the session began last month, it was widely anticipated that there will be progress on a national goods and services tax (GST) as well as the coal and insurance reforms. But, here we are, the Indian lawmakers not only failed to vote on a six-year-old bill that would allow more foreign investment in the insurance sector before the parliament session, the GST bill was just introduced four days before the parliament session ends, while only the lower house approved the coal legislation (a plan for auctioning coal mines). Now it’ll have to wait until at least the next session in February.

BJP, controlling 52% of seats in the lower house, but holds only 18% of the 245-member upper house, faces political challenges. Hands tied and it is improbable to be able to control the upper house before 2018, Modi needs to find alternative ways to get bills passed. After the last parliament session ended in a legislative logjam on Dec. 23, he was forced to resort to executive orders to raise foreign participation in insurance ventures and allow private companies mine and sell coal. The move demonstrated the administration’s determination to push through economic measures. An ordinance is an emergency measure that has to be passed by the next parliamentary session. Including the emergency executive order on Dec. 29 to ease land acquisition rules and the latest one on Jan. 5 to amend the Mines and Minerals (Development and Regulation) Act, Modi has already resorted to using its executive power eight times in his seven months in office due to a lack of majority in the upper house of parliament while ignoring criticism that it is bypassing Parliament. In total,

Gross domestic product (GDP): +5.3% y/y in 3Q14 (vs +5.7% in 2Q14) Industrial production: +3.8%y/y vs -4.2% y/y in Oct

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the government has issued four ordinances after the Parliament’s winter session ended Dec. 23. Under these orders, foreign firms can increase their participation in sectors starved of capital and squeezed by regulations. Having said the above, outside of parliament, Modi has made some progress after coming to power. Notwithstanding a shift towards a more market-based energy pricing, he announced several schemes, including banking for all and labour reforms, sought to improve ease of doing business, promoted a shift towards manufacturing (a.k.a. “Make in India”), and started campaigns to clean up the environment (a.k.a. “Clean India campaign”). Modi has also been seen practising an open foreign policy, travelling to boost bilateral ties with key countries.

Themes for 2015 The Indian economy shifted into higher gear towards the end of calendar year 2014. It has been showing signs of a recovery in the fiscal year that started in April, after staying below 5% for two years in a row. Goss domestic product (GDP) is expected to grow at 5.5% in the current fiscal year, accelerating from the 4.7% last year, on the back of improving macroeconomic situation and political stability, and is likely to extend the momentum into 2015. That compares with estimated growth of 7.4% in China, 0.2% in Russia and 1.4% in Brazil. The nation shines within the BRIC bloc, and set to replace China as the bright spot in Asia as China’s economy slows. Improving prospects for Asia’s third-largest economy, spurred by decisive government actions, have attracted foreign inflows into Indian bonds and equities and prompted Standard & Poor’s (S&P) to upgrade the sovereign credit outlook in September. S&P raised India’s credit-rating outlook to stable from negative, while maintaining its “BBB-“ rating (the lowest investment grade). S&P cued that it could raise the rating if growth quickens and fiscal, external or inflation metrics improve. On external front, while the US interest rate normalization could add volatility into the Indian markets, but it also implied an improved US economy prospect, which could help to offset the moderate growth in the rest of the world. Having said that, at the current conjuncture, India is less fragile facing the looming gradual interest rate hike given the improved fundamentals. With lower oil prices, 2015 would be a golden opportunity for India to overhaul its economy, and here’s why and what to expect.

Expansionary policy in hope for higher growth and to sustain low inflation For the Indian economy, the year 2015 could mark an inflection point of sorts, both in terms of moving to a higher growth trajectory of 6% or more and the shift to a sustained low inflation phase. The period would also herald a possible shift in the Centre’s stance on fiscal consolidation, something that is likely to be weaved into the broader template of Union Budget 2015-16, while maintaining the fiscal deficit target of 4.1% of the GDP 2014/15. The recovery in Indian economy would likely to be driven by domestic factors – particularly in manufacturing and infrastructure sectors as government expedite to clear the backlog of stalled projects. The Reserve Bank of India (RBI) has a target of bringing consumer inflation down to 6% by March 2015. The Finance Minister Arun Jaitley too had evinced hope that the economy would grow 6-6.5% in 2015/16 and exceed 7% in 2016/17. The nation needs a faster growth to create jobs for all the young people joining its workforce in coming years.

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These provide scope for an expansionary policy from both the fiscal and monetary end spur GDP growth – in other words, a call for higher public spending and a rate cut in 2015. 1. More fiscal spending coupled with higher investment to come According to the Finance Minister, India had emerged as the largest PPP (Public-

Private Partnership) market in the world with over 900 projects in various stages of development. Authorities have been reiterating their commitment towards improving infrastructure in all sectors including roads, port, airports, railways, urban, rural and industrial infrastructure, real estate and gas pipelines, besides ensuring adequate flow of funds and financing of projects. The PPP model would continue to raise adequate resources for developmental needs.

The PPPPs (People-Public-Private Partnership, a.k.a. 4P India) is the new model proposed by the Finance Minister to signify people’s involvement in such projects, following the favoured PPP framework which has delivered iconic infrastructure like airports, ports and highways.

India passed an emergency executive order on Dec. 29 to ease land acquisition rules in sectors like power, affordable housing, rural infrastructure, industrial corridors and defence to kick-start hundreds of billions of dollars in stalled projects, though investments are unlikely to flow in immediately. Restrictions on buying land, under a law championed by the last Congress government, are among barriers holding up projects worth almost US$300 billion. Finance Minister said projects in defence, rural electrification, rural housing and industrial corridors would not need to seek the consent of 80% of the affected landowners as mandated. They will also be exempt from holding a social impact study involving public hearings - procedures that industry executives say can drag out the acquisition process for years. Compensation to landholders, however, will stay at four times the market price.

2. More accommodative monetary policy Lower global crude oil prices along with expectations of a normal monsoon are

also expected to keep inflation low, leading to an easier monetary stance. The Mid-Year Economics Analysis pegged retail inflation to be in the range of 5.1-5.8% in the next five quarters starting December 2014, and is likely to be about an average 6% next fiscal.

The ‘Mid-Year Economic Analysis 2014-15′ tabled in Parliament also assumed that the RBI would maintain status-quo in the interest rate till March 2015 and a stable outlook for rupee. The central bank has also signalled that it may cut the main rate early in 2015.

Looking east, Japan and China entering easing cycle, intensifying calls for India to follow suit. Slowing GDP growth, industrial production, lack of investment and the declining upside inflation risk, are piling further pressure on central bank to ease monetary policy.

A cut in borrowing costs would boost consumer spending and investment – which in turn could be supportive to the economy. An interest rate cut would also lead to more equity inflows as it would kick-start the capex cycle in India.

3. Make in India bandwagon India’s recent economic growth has largely come from the boom in services such

as information technology, but those contribute only a tiny fraction to what is still a farm-dominated economy. Industrial manufacturing accounts for about

Consumer price index (CPI): +5.0% y/y in Nov vs +4.4% y/y in Oct Official target CPI: 8% in Jan’15; 6% in

Jan’16; and 4% in long term Wholesale price index (WPI): 0.00% y/y in Nov (weakest since Sep’09) vs +1.77% y/y in Oct

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17% of GDP. The government wants to raise it to 25% and create 100 million jobs by 2022.

Modi launched an ambitious “Make in India” campaign with a raft of proposals designed to get foreign companies to set up shop and make the country a manufacturing powerhouse as well as boosting exports as China has in the past few decades.

The whole drive of manufacturing in India will revive and ensure a solid growth in manufacturing sector, create millions of jobs – a step to meeting the key government goal, as well as provide a platform to enhance skills and develop competencies. The government’s push for manufacturing comes at a time when many big companies are seeking an alternative to China as costs and risks there rise.

The Make in India programme will lay emphasis on 25 sectors, including automobiles, auto components, design manufacturing, renewable energy, mining, textiles, bio-technology, pharmaceuticals, electronics and ports.

As part of the plan, foreign investment caps in construction will be eased to enable greater participation in the NDA government’s 100 smart cities project and affordable housing. FDI caps in railways and defence production have already been eased to 100% and 49%, respectively. State governments have been advised to identify specific obstacles that need ironing out to enable faster investment flow.

Meanwhile, to achieve its objective to use labour-intensive manufacturing to employ its booming working age population, labour reforms is necessary. India’s rigid labour laws discourage investments in the manufacturing sector and restricts economic growth. The much awaited labour reforms unveiled two key areas of reform on Oct. 16 - ‘unified labour and industrial portal’ and ‘labour inspection scheme’ – that will make inspection and businesses transparent and also ease rules so that employees can smoothly move their social security funds when they change jobs. However, much more needs to be done to put together a system that is not biased against either employers or employees.

Tackling twin deficits: comfortable with current account deficit and on the way to meet its fiscal deficit target Current account and fiscal balance to benefit from the recent weakness in oil prices (India imports 80% of its crude oil and 18% of its natural gas needs). Also, we remain positive on the continued energy reforms from the government.

1. Fiscal consolidation: Subsidy rationalization Faster growth coupled with easing price pressures would support Modi’s plan to

cut the budget deficit to a seven-year low. Government’s strategy to tackle the deficit would focus mainly on cutting expenses instead of increasing revenues.

India was the world’s third-biggest crude oil importer in 2013 behind the U.S. and China. Oil-related subsidies accounted for 4.4% of India’s total spending in the year through March, almost triple what it spent on health.

With October’s drop in global oil prices sending down the cost of diesel, Modi took the opportunity to announce an end to state controls on diesel fuel prices.

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Diesel price deregulation – like petrol, diesel prices will be market determined, aligning with international crude oil costs and change every fortnight. On Oct 18, controls on diesel pricing are lifted with immediate effect which led to an immediate fall in pump prices of nearly 6%. Ideally, with key fuel cheaper, lower freight costs would push food prices down and help control inflation, providing room for the central bank to cut interest rates, making home loans cheaper and sparking an economic revival.

Piped natural gas (PNG) price subsidies cut – natural gas price was revised 3 times in less than 2 months, which in turn could affect cost of compressed natural gas (CNG), piped cooking gas, fertilizers and possibly electricity. However, the impact is likely to be insignificant as only 7% of the nation’s power generation capacity is based on gas.

The government also decided to re-launch the direct benefit transfer scheme for cooking gas and link it with the new bank accounts opened under the Prime Minister's People Money Scheme. The programme would be implemented “in a mission mode” between Nov. 10, 2014 and Jan. 1, 2015 and that those who lacked bank accounts would continue to receive subsidised LPG gas cylinders.

There can be no better time to tackle subsidies and initiate measures that can be perceived as politically unpopular. Oil prices have fallen to a five-year low, inflation is easing, the current account deficit has narrowed and investors are betting the U.S. Federal Reserve won’t raise rates until June. Only two of India’s 29 states are likely to hold an election this year, compared with five in 2016. A light election calendar makes it more probable that Modi can make politically unpopular decisions without suffering at the polls.

Although India no longer regulate prices of petrol and diesel, but state-owned companies are forced to discount prices of other common fuels such as kerosense and cooking gas to keep a lid on retail prices.

The next major milestone is Modi’s first full-year fiscal budget in late February. A further fall in crude oil prices could prompt him to start the process of eliminating subsidies for cooking gas and fertilizer. But it will be tougher to drop subsidies on liquefied petroleum gas and kerosene, used by millions of Indians for cooking.

2. Eliminating bottlenecks: To introduce GST by 2016 Despite the arrival of a new business-friendly government, the country slipped to

142 in the World Bank's latest 'ease of doing business' rankings. Last year, India was ranked 134. Time spent dealing with the red tape and regulatory bureaucracies that vary from state to state, can be an expensive costs to the business as well as the economy. Corruption is another reason holding back businesses in India.

Aiming to break this crippling barrier, Finance Minister Arun Jaitley introduced legislation in the winter session of Parliament for one goods and services tax (GST) to replace the complex system of nearly 20 different taxes and levies imposed on commodities by different states. The GST is one of the most ambitious tax reform so far and a dramatic step toward making it easier to do business in India, a priority for the government and what Modi has vowed to correct.

GST is expected to remove barriers for trade within the country and create a national market. When the new law comes, state borders and checkpoints would eventually phase out and India will be one seamless market. As it frees the movement of goods between the states, removing the element of uncertainty in the business cycle for Indian manufacturing, the single, rationalized tax system may lead to warehousing consolidation as businesses can hope to maintain lighter inventories and adopt just-in-time manufacturing methods.

GST will also help remove the cascading effect of layers of taxes and thus encourage compliance.

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The unified GST is seen as a game-changer that would simplify taxes while broadening the tax base, adding about 2% to the nation’s economic output in the next five years.

The rate for GST is yet to be decided, but it is expected to be in a range that would make exports competitive.

Yet challenges remain. This is not the first time the GST bill has been introduced in Parliament. The proposal has stalled several times in the past and missed deadlines as state governments have vested interest – fear to lose the freedom to impose levies and raise revenue. At the central level, it will subsume excise duty, service tax and additional customs duties; while at the state level it will include value-added tax, entertainment tax, luxury tax, lottery taxes and electricity duty.

The bill, which requires an amendment to the national constitution, is likely be taken up for discussion and voting in the next parliamentary session, which opens in February, and has to be passed by two-thirds of lawmakers. Then it must be approved by at least half of the state legislatures. Finance Minister said he expects the implementation to begin in April 1, 2016.

3. Energy reform: Long term benefit but potential near term imports spike After the ordinance to let the government auction coal mines and allow private

companies to mine and sell the fuel, Modi has pass another executive order which changes the Mines and Minerals Development and Regulation Act which allows the auction of minerals such as iron and bauxite.

India used to hand over mining licences to firms without any competitive bidding, leading to complaints of illegal mining and inviting judicial curbs. This choked the industry that contributes nearly 2% to Asia's third-largest economy.

While the executive orders are to help to stem a fall in output and cut imports in the mining sector, but the auction will be a time consuming process that will lead to increased imports in near term. And in case the auction mechanism fails to take off, imports could increase and widen the current account deficit in 2015/16.

4. Eases gold import rule: To cut smuggling and raise legal shipments, meaning

higher imports As the central bank is of the view that the current account deficit is in control,

coupled with lower crude and commodity prices providing cushion, the Indian government scrapped a rule imposed in August last year mandating that a fifth of all the precious metal imported should be re-exported, a rule known as 80:20. The move should cut premiums on gold, lower prices for buyers and cut smuggling. The curbs had become counterproductive, leading to distortions and illicit imports.

The government still controls flows through a 10% import tax and by limiting direct shipments to selected banks and trading companies nominated by the central bank. India buys abroad almost all the bullion it consumes and represented 25% of global demand last year, according to the data from World Gold Council.

Exports: +7.3% y/y vs -7.9% y/y in Oct Imports: +26.8% y/y vs +3.3 y/y in Oct Gold imports: +571.19% y/y in Nov

Trade balance: -USD16.9 billion (18-month record) vs -USD13.35 billion in Oct Current account: 2.1% of GDP (five-quarter high) in 3Q14

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Equity Market

India (OW)

Economic prospects have improved, but concern over interest rate hike in the US and weak global crude oil prices may keep investors on edge.

Stocks in interest rate-sensitive sectors such as banks, auto, real estate and bonds, are likely to be the winners in 2015, with the Reserve Bank of India expected to start easing its monetary policy.

Though the falling crude prices have improved the prospects of the Indian economy, India may not be spared if there is an emerging market sell-off. On the global front, oil exporting nations could face problems, and there could be a global risk aversion. This could lead to volatile markets in the near term.

Low-hanging fruits – Similarly to China, Indian government set to roll out divestments of state owned companies, bringing greater retail participation

The Modi government’s first disinvestment in public sector undertakings (PSU) shares began on Dec 5, with its 5% stake in steel giant, Steel Authority of India Ltd (SAIL). The SAIL offering would be the first PSU share sale under the new government. Retail investors would get a discount of 5% to the bid price in the SAIL offering – help to encourage retail participation in the disinvestment programme. As much as 10% of the offered shares has been reserved for retail investors, a minimum of 25% of the issue size would be reserved for mutual funds and insurance companies. The Cabinet had in July 2012 approved a 10.82% stake sale in SAIL. Accordingly, the first tranche of disinvestment of 5.82% was completed in March 2013.

The government has lined up a host of PSUs to pare its holdings. The disinvestment plan includes 5% stake sale in Oil and Natural Gas Corporation Ltd (ONGC), 10% in Coal India and 11.36% in National Hydroelectric Power Corporation (NHPC).

In addition, investors may also look into sectors which benefits from the reform, in particular, manufacturing, infrastructure, financials, pharmaceuticals and healthcare, and telecommunications. Growth rates in these sectors are poised to increase.

With Modi’s aggressively pushing through key decisions via the ordinance route despite criticism, showed government’s determination to reform. As such, we maintain our OW stance on the Indian equity. Nonetheless, some of the headwinds the country may face: in the form of political risks, as the Government does not have a majority in the Upper House, bank recapitalization and asset quality, geo-political risks and market turbulences due to US Fed hiking rates.

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Key Market and Macro Data

FY11 FY12 FY13 FY14F Avg

EPS %y-y (SENSEX) 24.20 7.90 1.00 10.68 16.20

P/E , year avg (SENSEX) 16.85 15.40 17.06 17.41 18.04

USD:Local Currency, year avg 46.69 53.35 58.59 63.04 47.29

Real GDP %y-y 7.67 4.81 4.70 5.50 7.52

Inflation %y-y - 9.69 10.07 6.70 8.99

Pol icy Rate, year avg 7.58 8.13 7.52 8.00 7.12

Budget % GDP -7.18 -5.92 -5.89 -4.10 -5.08

C % GDP 61.10 61.40 61.36 - 61.85

G % GDP 12.20 12.65 12.94 - 12.09

GFCF % GDP 33.92 32.75 31.26 - 33.34

X % GDP 25.21 26.12 26.50 - 23.71

M % GDP -31.22 -33.31 -31.37 - -28.45

CA % GDP -3.36 -4.97 -2.61 -2.00 -3.28

Total Govt. Debt % GDP 49.23 51.30 51.67 - 53.36

External Debt % GDP 18.45 21.40 22.67 - 19.06

Total Debt % GDP - - - - -

(2) Bloomberg's India Forecasts are based on fi sca l year (2014 = FY14/15, 2015 = FY15/16)

Source: Bloomberg, CEIC, PSR est.

* “-“ impl ies no information avai lable

Remarks :

(1) PSR estimates are ca lculated based on ca lendar year, not fi sca l year of respective country

SENSEX Index

Source: Bloomberg, CEIC, Phillip Securities Research (Singapore) Estimates

Indian stocks (SENSEX index) has potential upside, cheap in P/B terms P/E= 14.21x; 52-weeks Trailing P/E

(18.04x); LT P/E (18.04x) P/B= 2.16x; LT P/B= 3.38x

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Contact Information (Singapore Research Team) Management Chan Wai Chee (CEO, Research - Special Opportunities)

+65 6531 1231 Research Operations Officer Jaelyn Chin +65 6531 1240

Macro | Equities Market Analyst | Equities US Equities Soh Lin Sin +65 6531 1516 Kenneth Koh +65 6531 1791 Wong Yong Kai +65 6531 1685 Bakhteyar Osama +65 6531 1793 Finance | Offshore Marine Real Estate Benjamin Ong +65 6531 1535 Caroline Tay +65 6531 1792 Telecoms | Technology Transport & Logistics Colin Tan +65 6531 1221 Richard Leow, CFTe +65 6531 1735

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AUSTRALIA Phillip Capital Limited

Level 12, 15 William Street, Melbourne, Victoria 3000, Australia

Tel +61-03 9629 8288 Fax +61-03 9629 8882

Website: www.phillipcapital.com.au

SRI LANKA Asha Phillip Securities Limited

No-10 Prince Alfred Tower, Alfred House Gardens, Colombo 03, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

Website: www.ashaphillip.net

INDIA PhillipCapital (India) Private Limited

No.1, 18th Floor Urmi Estate

95, Ganpatrao Kadam Marg Lower Parel West, Mumbai 400-013

Maharashtra, India Tel: +91-22-2300 2999 / Fax: +91-22-2300 2969

Website: www.phillipcapital.in

TURKEY PhillipCapital Menkul Degerler

Dr. Cemil Bengü Cad. Hak Is Merkezi No. 2 Kat. 6A Caglayan 34403 Istanbul, Turkey

Tel: 0212 296 84 84 Fax: 0212 233 69 29

Website: www.phillipcapital.com.tr

DUBAI Phillip Futures DMCC

Member of the Dubai Gold and Commodities Exchange (DGCX)

Unit No 601, Plot No 58, White Crown Bldg, Sheikh Zayed Road, P.O.Box 212291

Dubai-UAE Tel: +971-4-3325052 / Fax: + 971-4-3328895

Website: www.phillipcapital.in

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INDIA

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