ENAM ASSET MANAGEMENT

Case for Equity Investments.…

June-2012

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Enam / Asset Management / India Fundamental Equities Platform / EIP / - 2 -

Sustained Earnings in Volatile Times

5

10

15

20

25

30

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

Ma

r/05

Ma

r/06

Ma

r/07

Ma

r/08

Ma

r/09

Ma

r/10

Ma

r/11

Ma

r/12

Nifty

12 m fwd PE

Earnings

Oil peaks

at $147

Sudden

slump;

correction in

Jan/08

Oil touches $ 33

Sustained earnings growth.

PE Expansion

Earnings

moderation.

PE Collapse

Earnings growth.

Impending PE rerating

Sharp

recovery

Lehman

collapse

Surprise victory of

Congress in elections

Market

peaks 2G Scam

discovered

Nifty

EU financial

crisis

Enam / Asset Management / India Fundamental Equities Platform / EIP / - 3 -

Stock prices are a slave of earnings

Enam / Asset Management / India Fundamental Equities Platform / EIP / - 4 -

Buy at 12x and Sell at 20x

Enam / Asset Management / India Fundamental Equities Platform / EIP / - 5 -

Bear mkts have swift & sharp rallies; Need to stay

invested

1,800

2,400

3,000

3,600

4,200

4,800

5,400

6,000

6,600

Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03

35%

44%

33%

24%

41%

20%

66%

Note: Only rally >20% considered

0

5,000

10,000

15,000

20,000

25,000

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

Analysed period

1992-2003

Be prepared for these & BE NIMBLE TO BENEFIT FROM PERIODS OF OPTIMISM

Enam / Asset Management / India Fundamental Equities Platform / EIP / - 6 -

Volatile Markets SENTIMENTS CREATE ENTRY POINTS…

Source: Bloomberg

Good returns materialize over time on investments made at cheap valuations

Sensex (2001-2011)

-

5,000

10,000

15,000

20,000

25,000

Sep

-01

Sep

-02

Sep

-03

Sep

-04

Sep

-05

Sep

-06

Sep

-07

Sep

-08

Sep

-09

Sep

-10

Sep

-11

* Returns calculated as of 07/01/2012

Year 1 Yr Fwd PE Events Sensex 3 Years Later

Sep - 2001 11 Attack on Twin Towers 84%

Jun - 2004 10 Surprise Victory of Congress 203%

Jun – 2006 13 Collapse of U.S. Housing Markets 61%

Nov – 2008 11 Lehman Bankruptcy – Sub-Prime Crisis 100%

Dec - 2011 13 European Crisis ?

Crises Related Events – Dark Before Dawn

Enam / Asset Management / India Fundamental Equities Platform / EIP / - 7 -

Mid-caps are more undervalued than large caps…

• Midcap P/B discount has narrowed from the high in December • The Midcap discount has widened sharply in recent weeks

Enam / Asset Management / India Fundamental Equities Platform / EIP / - 8 -

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Vicious to virtuous cycles

Crisis invokes self-correcting institutional action. This, along with our demographics trajectory and

under-valuations, inevitably attracts capital again ….

So, the “everything seems utterly hopeless” turns to “everything looks great”, as the INR, Fisc & CAD simultaneously improve

Sx returns - INR: 113% /

$: 108%

Sx returns - INR: 614% /

$: 761%

CAD (% of GDP) 3% 0 1-2 1 surplus to 1

Fiscal Deficit

(% of GDP) 7% 5 4 rose to 7 6 5 fell to 4

INR depn (%) 11 pa 14 5 pa stable

rose 2.3 pa despite crude

trebling

Macro variable

Sx returns - INR: 367% /

$: 200%

Major reforms

Major reforms

INR

CAD Fisc

Source: Bloomberg, ENAM Research

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