investor guide jan2011

7/31/2019 Investor Guide Jan2011

1/15

INVESTOR GUIDEPage 1Volume 1 Issue 3

Investor GuideJanuary 2011

Inside This Issue

1 Five Mistakes to Avoid In

2011

2 PINC Power Picks

7 Consensus Opinion

9 Multi Asset Structured

Product

10 Gold continues its Upwards

March

11 Where's My Money!

12 Expert Speak :

Mr. Sandip Sabharwal

13 For Good SIP Returns -

Choose a Volatile Fund

15 Tactical View for January

2011

Five Mistakes to Avoid In 2011Eventually each portfolio needs to have a theme based around the investor's own world view relative to the

world. Your personal optimism (conviction levels), your savings situation (determines time horizon and risk

appetite), your style of investing (long term or speculative), your own job profile (exposed to a particular

industry or asset class) etc all should go into how your portfolio should look, apart from the 'expert' advice

that you are dished out from time to time. Here's a list of 5 mistakes however that you should avoid

irrespective of how you create your portfolio and which market gurus you follow.

Have a portfolio that doesn't keep you awake at night

You shall never be able to time markets most of the time and therefore there is no point investing into a

portfolio which you think should outperform in the very short term. If you have some sharp ideas however,

limit their exposure in your overall portfolio so there is no over dependence on this per formance.

Take expert forecasts with a grain of salt

Most experts have a world view depending on their own limitations and views of armies of analysts. This

may or may not necessarily and has the additional risk of changing from time to time. Remember how

many analysts were in the media this year suggesting a sharp decline middle of the year, recommending

long term bonds and so on and suddenly disappeared when the US suddenly decided to turn around and

spook markets into a retracement. Eventually , have a blend of ideas in your portfolio so if you go wrong on

one, something else compensates. And select good companies so when the 'top down views' are hedged,

you get the premium from the performance of a good company.

Never confuse the unlikely with the impossible

No one thought 10 years ago Crude could ever go to USD 150 or that institutions like Lehman and AIG

would collapse. Eventually, each corporation has its own Achilles hill and there are a lot of market forces

that collude to first raise and then decimate stories. Watch the broad data carefully and keep potential exits

or entry points in mind. So if you start hearing of 'impossibilities' , think again!

Never confuse a trade with an investment.

The right time to buy is when an investment is being overlooked and available cheap it takes time for it to

bring money in but then, the potential returns make up for the lost time. Don't overburden your portfolio

with 'smart ideas' that are nothing but momentum trades which may or may fire and someone else desper-

ately needs a buyer for. Blend your portfolio well so you have both kinds of ideas running in your portfolio

review trades regularly and keep adding to investments.

History is irrelevant

Just because a scrip traded at a particular level some time ago doesn't give it the right to be back there

again. The world is changing rapidly, regulations are driving differential economics and resources are be-

coming scarcer- and therefore individual companies who had substantial hold earlier in their market spheres

are facing a dramatically altered world where their existence may be challenged. In some areas like tech-

nology, this is evident immediately while in other industries like FMCG and Pharma, these challenges may

be less evident in the short term. Dont make the mistake of missing the broad trends that are shapingindustries and therefore, dont make the mistake of assuming history will repeat itself.

When an investment sounds at odds with the above five principles, be merciless and exit it without re-

morse. Holding something that you will not have conviction in , based on your own selection of investment

principles, is an investment you should not be making.

Being rich is having money;

being wealthy is having time

Margaret Bonnano


2/15

INVESTOR GUIDEPage 2

PINC Power Picks

Apollo Tyres: BUY, TP- `97Whats the theme?

Lock-outs at Apollo Tyres' Cochin facility and Dunlop (South Africa) operations took a toll on its H1FY11 results.

Further, high natural rubber prices impacted margins. Rubber supply has been disrupted due to unseasonal weather

in India and South East Asia, driving prices to an all-time high of `200/kg. Domestic tyre manufacturers have under-

taken 3-4 rounds of price increases and another round is expected soon. The demand momentum is expected to

continue, however ability to take price increases seems to be limited.

What will move the stock?

1) Re-rating of the sector on the back of radialisation in the truck-bus radial (TBR) segment. 2) Ramp-up at the

Chennai facility and commencement of production of TBR tyres. 3) Correction in natural rubber prices due to produc-

tion growth or reduction in import duty on natural rubber as demanded by the tyre industry. 4) Germany, the largest

European automobile market, passed a legislation making it mandatory for motorists to use winter tyres. This will

benefit Apollo Tyres' European subsidiary, VBBV, which specializes in this segment. With cold weather conditions

becoming severe across Europe, demand for winter tyres is expected to be robust. Subsidiaries are expected to

contribute `1.9bn in profit in FY11.

Where are we stacked versus consensus?

Our FY11 and FY12 consolidated earnings estimates are `7.8 and`9.7 respectively. Our FY11 consolidated earnings

estimate is 11.9% higher than consensus expectation of `6.9. We reiterate our 'BUY' recommendation on the stock

with a target price of`97.

What will challenge our target price?

1) Further increase in natural rubber prices, a key raw material; 2) Payment of penalty due to involvement in a price

fixing cartel alleged by Competition Commission of South Africa.

Godawari Power: BUY, TP- `276

Whats the theme?

We expect GPIL to record earnings CAGR of 50% over FY10-12 on volume growth and margin expansion, driven by the

recently-commissioned Ari Dongri mine, 0.6mtpa pellet plant, and 20MW biomass power plant. The 0.6mtpa pellet

plant of Ardent Steel (75%-owned subsidiary) is expected to provide additional earnings growth, but this is not fac-

tored into our estimates.


1) Stabilisation of the newly-commissioned 20MW biomass power plant. 2) Improved utilisation of the 0.6mtpa pellet

plant and captive usage for DRI production to improve DRI output and profitability. 3) Contribution from Ardent Steel

to consolidated earnings is expected from Q3FY11 onwards (not included in our valuations). 4) Boria Tibu mine, which

was affected by delay in handover of forest area, is now expected to commence from Q1FY12. 5) Steel profitability

expected to improve in seasonally strongest Q4. on the stock and maintain our BUY recommendation with a target

price of`340 (12x FY12E).


Our earnings estimates are below consensus, mainly because we have not included Ardent Steel in our projections.


1) Obstacles in ramping up of output from the pellet plant (own as well as Ardent Steel's) and the 20MW power plant;

2) Continued delay in acquiring forest land in the Boria Tibu mine; 3) Simultaneous decline in steel prices and power

tariff.


3/15


HCL Tech: BUY, TP- `488

Whats the theme?

Uptick in discretionary IT spend will continue to provide robust revenue growth for HCL Tech. Recovery of

the BPO segment will also provide support to operating margin in FY12. Further strengthening of EUR

against USD will have positive near-term impact.


1) Robust volume growth of 7.4% QoQ in Q2FY11; 2) Broad based growth across key verticals; 3) Returning

to growth trajectory of the BPO segment that appears to have bottomed out; 4) High growth in IMS and

custom application segment driven by discretionary spend; 5) Large deal pipeline and highest gross addi-

tion proves the confidence in demand environment; 6) Lower forex losses due to absence of negative im-

pact of OCI losses in the ensuing quarters.


Our revenue estimates vary from Consensus by ~1%, underpinned by stronger volumes and modest uptick

in pricing for FY12. Our EBITDA margin forecast for FY12 is in line with consensus. Our FY12 EPS estimate

is also in line with consensus.


1) Slower recovery in the US economy; 2) Appreciation of INR vs. USD; 3) Increase in tax rates after the

sunset clause; 4) Higher attrition and wage increments.

IRB Infra: BUY, TP- `301

Whats the theme?

We believe IRB Infra is a proxy play on the Indian road sector. NHAI awarding is expected to pick up in CY11,

IRB is the largest BOT operators in India with in-house execution capabilities; it currently has 16 BOT

projects in its portfolio, of which ten are operational, five are under construction, and one is in advance

stages of financial closure. IRB appears well positioned to add projects worth US$1bn (about 4-6 BOT

projects per annum) without any equity dilution.


1) Timely execution of projects under construction will act as a catalyst for stock price, the execution in

H1FY11 has been satisfactory. 2) Awarding of orders by the NHAI has been slow this fiscal; we believe it

would increase the pace of awarding activity in Q4FY11, to achieve its full-year target. We expect IRB to bea major beneficiary of this as it is pre-qualified for projects worth Rs250bn. 3) After the recent correction in

stock price, it is available at compelling FY11E and FY12E P/BV of 3.0x and 2.5x respectively and it is trading

at FY12E P/E of 14.6x.


Our FY11 and FY12 earnings estimates are `15.6 and `15.2, 9.8% higher and 6.1% lower than consensus

respectively. We expect revenue growth of 62.6% and 48% to `27.7bn and `41bn vs. consensus expectation

of 58.3% and 42.3% to `26.9bn and `38.4bn in FY11 and FY12 respectively.

We believe the recent stock price correction provides a good entry point for investors with a long-time

horizon; our SOTP-based target price of `301 (vs. consensus target of `290) indicates potential upside of

34.4%.


1) Lower traffic growth; 2) Slowdown in execution of current orders; 3) Change in government policies,

which may adversely affect current tolling charges.


4/15


Jagran Prakashan (JPL): BUY, TP- `165

Whats the theme?

We like JPL for its leadership in UP (the largest print market in terms of readership and print ad value),

strong position in growing regions such as Bihar and Jharkhand, better cost efficiency, phased expansion

into other forms of media businesses, and a wider portfolio (including Mid-Day). Business growth in H1FY11

(15% ad growth) strengthens our belief that the company is well poised to benefit from steady growth in the

print media sector.


1) Robust ad CAGR of 18% over FY10-12E and improvement in margins; 2) Broad-based traction in other

business verticals; 3) Inorganic growth supported by the Blackstone investment.


Our revenue estimates vary from consensus by ~8% for FY12E. Our FY12 net margin forecast of 19% is in

line with consensus. Our FY12 EPS estimate, however, is 4% higher than consensus.


1) Increase in newsprint prices; 2) Slowdown in economic activity; 3) Increased competition in the markets

where JPL is present.

M&M: BUY, TP- `872

Whats the theme?

M&M, with significant rural presence, is expected to benefit from strong monsoons this year. The automo-

bile segment is expected to grow 20.8% and 13.2% in FY11 and FY12 respectively, on new product launches.

The tractor segment too is expected to grow 10.3% in FY11, due to higher crop output.


1) M&M acquired Ssangyong, Korea. This acquisition would provide it a 2-3 year leap in terms of product

development. The transaction is expected to be completed by year-end. Two SUVs from Ssangyong's port-

folio (Rexton and Korando) would be assembled at M&M's Chakan facility. 2) Production for the JV with

Navistar began at the Chakan plant. 3) M&M received EPA approval for launch in the US. 3) Demand ap-

pears strong for small commercial vehicles (SCVs), the fastest-growing CV segment, which M&M entered

into recently with the launch of Maximmo and Gio. 4) The company is expected to roll out expansion plans

to ramp up capacity given current growth in the tractor segment.


We expect EPS of `41.3 and `45.5 in FY11 and FY12 respectively. Our FY11 earnings estimate is 8.2% lower

than consensus expectation of `44.9. We value M&M using SOTP methodology at `872, discounting the

standalone business at 15x FY12E earnings.


1) Steep raw material price increases and M&M's inability to pass it on to customers; 2) Increased competi-

tion in the UV segment on new launches affecting market share; and 3) Litigation with Global Vehicles

Distributor, USA.


5/15


NIIT Tech: BUY, TP- `278

Whats the theme?

NIIT Tech has large exposure to high-growth niche verticals such as insurance and travel. New service lines

would boost non-linear growth and lead to improvement in realizations. NIIT Tech has no exposure to the

PIIGS zone and it has been able to achieve volume growth in Europe despite economic headwinds.


1) Recent wins in the Indian market: Five-year BSF contract of Rs2,280mn; 2) Good performance in the

Insurance and travel and transport verticals, which contribute ~72% to revenue; 3) Large untapped oppor-

tunity in the APAC markets, which are expected to be highest IT spenders in CY10; 4) Strong order book

and high growth in top 10 clients; and 5) Stable EBIDTA margins in the IT services business.


Our top-line estimates vary from consensus by ~5.3%, underpinned by stronger volumes and modest uptick

in pricing for FY12. Our EBITDA margin estimate for FY12 is 20.6% which is in line with consensus. Our FY12

EPS estimate is 4.3% higher than consensus.


1) Slower recovery in Europe; 2) Sharp currency volatility; 3) Higher attrition and wage increments; and 4)

Project delays and cancellation of government contracts.

Shree Cement: BUY, TP- `2,580

Whats the theme?

Shree Cement's Q2FY11 results were dismal as cement and power demand in North India was affected due

to above-average monsoons. With a flood-like situation prevailing in parts of North India, construction

activity slowed. However, cement demand has started to pick up, thus providing some respite to the ce-

ment manufacturers. Shree Cement has already commissioned its 1mn MT clinker unit at Ras and it will

commission a 1mn MT grinding unit at Jaipur H2FY11. Over the next 12 months, it also intends to commis-

sion 300MW of power, which will be available for sale in the merchant market. The company has aggressive

plans in the power business with addition of 600MW. Shree Cement is thus well positioned to overcome the

current oversupply situation in the cement industry, given its balanced portfolio of cement and power.


1) Given a good monsoon season across the country, we expect strong cement demand. 2) For Shree Ce-ment, we estimate a 9% volume CAGR over FY10-12. 3) With improvement in the demand scenario, cement

realizations would improve from the recent low levels. 4) Q2FY11 was a difficult quarter for the power busi-

ness as demand from state electricity boards was lower. It is gradually picking up and the company has

managed to enter into a forward contract for 100MW power until July-2011. 5) The power business would

contribute ~20% to revenue by FY12E and provide an incremental source of earnings.


Our FY11 and FY12 earnings estimates are Rs133 and Rs168 respectively. Our FY11 EPS estimate is 5.9%

higher than consensus expectation of Rs126. We remain positive on the stock due to management's excel-

lent track record in project execution and strong earnings visibility.


1) Delay in infrastructure projects leading to lower cement demand in the near term; 2) Delay in commis-

sioning of power projects.


6/15


TATA STEEL: BUY, TP- `759

Whats the theme?

We expect Tata Steel's EBITDA to grow at 48% CAGR over FY10-12, driven by its profitable Indian opera-

tions, turnaround at Tata Steel Europe on improved capacity utilization, leaner cost structure, partial re-

source integration, and better steel profitability. We expect Tata Steel's consolidated net profit to be `62.2bn

in FY11 and `72.7bn in FY12. We find the stock attractively valued at 5.0x FY12E EV/EBITDA.


1) Improved profitability of Tata Steel India with better demand and rising steel prices; 2) Easing of high

financial leverage with recent debt restructuring at Tata Steel Europe (capital raising of ` 70bn recently

approved); 3) Improved fundamentals of Tata Steel Europe notwithstanding a weak Q3FY11E; 5) Progress

on raw material integration in Tata Steel Europe; 6) Brownfield expansion of 2.9mn tonnes at Jamshedpur

as per schedule.


Our FY12 consolidated estimates are almost in line with consensus. We value Tata Steel using SOTP meth-

odology at `759.


1) Lower steel profitability on correction in steel prices and/or significant rise in input costs; 2) Weak recov-

ery in Europe leading to lower capacity utilization and sustained subdued profitability at Tata Steel Europe;

3) Delay in Brownfield expansion; 4) Delay in resource integration.

USHA MARTIN: BUY, TP-`

120Whats the theme?

We expect Usha Martin to achieve 33% volume CAGR over FY10-12 on an improved cost structure, with

completion of expansion of metallics capacity by 0.4mtpa and that of steel by 0.6mtpa and full integration

from mineral resources to value-added products. We estimate 36% EBITDA CAGR and 42% EPS CAGR over

FY10-12.


1) Volume growth on higher metallics and billet output from the recently-commissioned 0.4mtpa blast

furnace (aided by feed from 0.8mtpa sinter plant) and 0.6mtpa steel melting shop respectively; 2) Better

performance of international subsidiaries; 3) Increased output from captive iron ore and coal mines afterthe monsoon season.


Our operating profit estimates are slightly lower than consensus as we remain cautious on volumes (our

FY12E sales volume is 0.67mnt vs. the company's guidance of 0.8mnt) and margin expansion (FY12E OPM

of 21.9% vs. guidance of 25% by Q4FY11).


1) Delay in stabilization of recently-commissioned projects impacting volumes and margin expansion; 2)

Weak recovery in Europe, which contributes >10% to consolidated revenue; 3) Impact on mining operation

either due to regulatory changes or naxalite activities; 4) Severe decline in steel profitability.


7/15


Consensus Opinion

Script Sector % Buy Recos Analyst (Total)

Ahluwalia Contracts Ltd Housing Related 100.0% 16

Usha Martin Ltd Capital Goods 100.0% 16

Cesc Ltd Power 96.2% 26

Patel Engineering Ltd Housing Related 96.2% 26Tulip Telecom Ltd Information Technology 95.5% 22

Indiabulls Real Estate Ltd Housing Related 95.2% 21

Welspun Corp Ltd Metal,Metal Products & Mining 95.2% 21

Bgr Energy Systems Ltd Capital Goods 93.5% 31

Allahabad Bank Finance 93.3% 15

Havells India Ltd Capital Goods 93.3% 15

Jaiprakash Associates Ltd Housing Related 92.3% 26

Ipca Laboratories Ltd Healthcare 91.3% 23

Asian Paints Ltd Chemical & Petrochemical 90.9% 22

Indusind Bank Ltd Finance 90.5% 21

Sobha Developers Ltd Housing Related 90.0% 20

United Phosphorus Ltd Agriculture 90.0% 20

The Stock Screener2010 was a fairly volatile year, and with the market having its share of volatility stock picking becamethe key to making money. 2011 promises to be even more volatile, and bottom up stock picking couldbe the key to making money in the markets. In this issue, we cover what the analyst world things aboutthe BSE 500 space.

Bullish Views

Stocks tracked by 15 analysts or more with 90% or more of them having a Buy reco on the same.

Bearish Views

Stocks tracked by 15 analysts or more with 40% or more of them having a Sell recommendation on the same.

Script Sector Analyst (Total) % Sell Recos

Areva T&D India Ltd Capital Goods 15 93.3%

National Aluminium Co Ltd Metal,Metal Products & Mining 33 84.8%

Reliance Power Ltd Power 18 83.3%

Bajaj Hindusthan Ltd Agriculture 16 81.3%

Abb Ltd Capital Goods 36 80.6%

Mahanagar Telephone Nigam Telecom 16 75.0%

Tata Communications Ltd Telecom 15 66.7%

Ambuja Cements Ltd Housing Related 51 58.8%

Punj Lloyd Ltd Capital Goods 31 58.1%

Nestle India Ltd Fmcg 30 56.7%

Ultratech Cement Ltd Housing Related 52 55.8%

Hindustan Unilever Ltd Fmcg 40 55.0%

India Cements Ltd Housing Related 40 55.0%

Acc Ltd Housing Related 54 50.0%

Reliance Comm. Ltd Telecom 43 48.8%

Siemens India Ltd Capital Goods 21 47.6%Voltamp Transformers Ltd Capital Goods 15 46.7%

Mindtree Ltd Information Technology 25 44.0%

Container Corp Of India Ltd Transport Services 19 42.1%

Tech Mahindra Ltd Information Technology 36 41.7%


8/15


Sector Wise Income Growth

These are the income growth rates the analyst world expects for respective sectors for FY 11 over FY 10and FY12 over FY 11(Market Cap Weighted)

Our Filter Favourites

These are the stocks that surpass our stringtent filters and are what analysts are more bullish on. The filtersvaried from minimum coverage, to maximum buy recos and to minimal sell recos and expected priceappreciation in excess of markets. The income growth rate of these scripts were above their respective sectors.

Script Sector

Bgr Energy Systems Ltd Capital Goods

Deepak Fertilizers & Petro Agriculture

Gvk Power & Infrastructure Diversified

Housing Development & Infras Housing Related

Adhunik Metaliks Ltd Metal,Metal Products & Mining

Indiabulls Real Estate Ltd Housing Related

Indian Hotels Co Ltd Tourism

Indusind Bank Ltd Finance

Jaiprakash Associates Ltd Housing Related

Kalpataru Power Transmission Capital Goods

Pantaloon Retail India Ltd Miscellaneous

Phoenix Mills Ltd Housing Related

Sadbhav Engineering Ltd Capital Goods

Sobha Developers Ltd Housing Related

Sterlite Technologies Ltd Telecom

Tulip Telecom Ltd Information TechnologyUsha Martin Ltd Capital Goods

Ing Vysya Bank Ltd Finance

Please note that these are statistical data derived from analyst consensus estimates on the BSE 500 compa-

nies. This is not a recommendation. Please speak to our investment advisors before taking positions.

Sector Income Growth 11/10 Income Growth 12/11

Agriculture 5.7% 22.3%

Capital Goods 22.3% 13.5%

Chemical & Petrochemical 15.0% 16.1%

Consumer Durables 31.8% 19.2%

Diversified 7.9% 18.9%

Finance 29.6% 26.5%

FMCG 21.0% 17.8%

Healthcare 3.5% 11.2%

Housing Related 11.1% 25.0%

Information Technology -0.2% 0.7%Media & Publishing 18.3% 10.1%

Metal,Metal Products & Mining 39.4% 25.2%

Miscellaneous 12.1% 20.6%

Oil & Gas 19.9% 19.2%

Power 13.8% 37.2%

Realty 0.0% 0.0%

Telecom -21.3% 27.5%

Textile 12.8% 38.7%

Tourism 20.3% 60.1%

Transport Equipments 25.5% 21.8%

#N/A 0.0% 0.0%


9/15


Multi Asset Structured ProductsNifty Linked Capital Protection structures were first launched in 2007 and soon followed Stock linked and

then Gold Linked Debentures. Now for the first time, a multi asset structured product which gives the

investor a participation of both Gold and Nifty is available through PINC Money. This would also carry a

100% principal protection. The product is a 36/40 months' investment linked to the basket of Nifty & Gold

returns. The product pays 110% participation on the basket return.

The investment plan enjoys unique advantages over comparable instruments, some of which are listed as

follows:

1. This is the first of its kind in the Indian structured products space with strategic asset allocation

as a key concept embedded in the structure.

2. The product pays 110% return on the positive basket performance with no upside cap. The 100%

principal protected suits investors who are risk averse in nature.3. The product enables you to an effective portfolio diversification benefit with ease and with no

downside risk as the principal is protected.

Key Features of Basket Linked Debentures

1. 100% principal protection.

2. 110% participation rate on the basket return.

3. Capital appreciation through Nifty while Capital preservation and Portfolio diversification through

Gold.

4. Basket Linked Debentures are held in Dematerialized Mode.

5. An effective strategic asset allocation tool.

6. The Basket is made up of 60% Nifty and 40% Gold.

NLD Series B5 Scenario 4 Scenario 5

Final Basket Final Basketappreciates by 40% appreciates by 40%

Indicative Yield 44.00% 55.00%

Tenure (Days) 1218 1218

Face Value (`) 100 100

Absolute Return (%) 44 55

Total 144 155

Taxable Amount (LTCG) 44 55

Tax Rate * 10.30% 10.30%

Tax Incidence 4.53 5.67

Variable Expenses 0% 0%

Cash Flow (net of taxes) 139.47 149.34

Absolute Post Tax Return (%) 39.47 49.34

XIRR - CAGR 10.47% 12.76%

Pay off Matrix

Scenario Analysis and Payoff MatrixSeries B5 - Nifty Gold Basket - Key Features

Tenor 36/40 months

Reference Index S&P CNX Nifty Index | Benchmark

Gold ETF - Gold BeEs

Issue Opens January 03, 2011

Issue Closes January 24, 2011

Deemed Dateof

Allotment (DDA) February 02, 2011

Initial Fixing Level Reference Index levels on DDA

Final Fixing Level Reference Index levels on DDA + 36M

Nifty Performance {Initial Level /Final Level}-1

Gold Performance {Initial Level /Final Level}-1

Principal Protection 100%

Participation Rate 110%

Basket Performance 60% of Nifty Performance + 40% of

Gold Performance

Payoff Max{0%, PR* Basket Performance}

Minimum ` 5,00,000 and in multiples of

Investment Amount ` 1,00,00

Placement Charges 3% + 10.30% service tax onplacement charges


10/15


Gold continues its upwards marchGold continued its march upwards for the month of December, gaining close to 3%, to close at $1420. Intra

month it made a high of $1431. This was strongly backed by the fact that the dollar is expected to stay weak,

thereby prompting world banks to start buying gold more than the dollar.

Also adding to the upmove was, the International Monetary Fund completing the sale of 403.3 tonnes of

gold, as part of its two-year efforts to bolster the lender's finances that also saw the Reserve Bank of India

purchasing 200 tonnes of the precious metal last year. Other countries that bought gold include Bangladesh,

Sri Lanka and Mauritius. Each of these nations had purchased 10 tonnes of the precious metal. With the

sale overhang over, markets construed this as a positive for Gold going ahead.


11/15


Where's My Money!Comparing Portfolio Performances in 2011

The BSE Sensex has been very noisy this year - delivering in the teens and creating a buzz as it usually

does. But quite a few portfolios have not delivered as well as they might. With Midcaps coming under

pressure and Real Estate stocks hammered and PSUs and metals not delivering well year on year, there

were quite a few things that did not go well. And so , quite a few investors are still wondering where their

money went if the markets are seemingly doing so well!

From our analysis, it looks like the Sensex is still trading at below 19500 levels (actual value 20,500 on 31

December 2010) if one looks at the values of the Sensex constituents and when they last reached their

current price levels. On an average, the individual scrips have not kept pace with the BSE Sensex - with 10

of the 30 scrips that make up the BSE Sensex trading below the value of the Sensex at that time, when these

first reached their current price levels. Major criminals include stocks like Reliance Infrastructure, BHEL

and RCOM which are trading at the same prices when the BSE Sensex was trading around 16000 levels and

lower. So if your portfolio had these three scrips only, you would have been left confused why your portfolio's

not making money when the rest of the world is seeing a 25% return!

ONGC, Reliance Industries, Larsen and Toubro, JP Associates have also lagged behind trading around

18000 level equivalent prices. Only the banking , information technology pack and healthcare , apart from

M&M, have kept pace with the Sensex and moved ahead with banks, despite recent corrections ahead of

the current Sensex levels - with M&M trading at almost 20,800 levels. This points to the intense sector churn

that has happened in the previous 3 months - while the BSE Sensex remained within the 20,000 range, the

sector fortunes changed dramatically. And may continue doing so into the next year.

The first quarter of next year may possibly change the equations as policies around oil and gas become

clearer, which affects 18% of the market capitalisation of the BSE Sensex, and the headwinds for financials

(23% weight in BSE Sensex), which is looking at an uncertain USD/INR, housing price declines and margin

squeezes, may affect individual portfolios even if the BSE Sensex doesn't do much. In fact, on a consensus

view, markets seem to have a 10% upside from current levels so returns would have to be generated from a

careful stock selection strategy , taking into account specifics of the company as well as a top down view,

with substantial difference in performances even within sectors also another given.

Another thing that is making it difficult for performance to be judged against the BSE Sensex is the lop-

sided nature of the index - with half the scrips in the index not even accounting for 30% weightage, similar

to the top 3 scrips- this creates a very volatile benchmark against which it is difficult to judge the actual

performance of most portfolios as risk preferences and future world views differ. It would therefore be

better if clients define their risk preference besides their returns preference versus the chosen index so that

the value of diversification and risk reduction is better represented in the meetings with advisors than itwould only if returns were compared. On the other hand, aggressive investors should probably benchmark

against a broader index and not the BSE Sensex or the S&P Nifty.

Another possible option, given the dramatic difference in performances, is that investors look at allocating

a definitive percentage to Index funds and ETFs in their portfolios to ensure that they get exposure to the

market truly for a certain % of the portfolio. This is especially true for investors who are sensitive to relative

performances of stock portfolios and are investing into mutual funds, which are finding it extremely diffi-

cult to beat indices.

And yes, a careful regular review of the portfolio with the advisor is more important now than ever before!

An hour a quarter would bring clarity on performance and why it lags or stays ahead of indices and what

risk is embedded into portfolios. And rid you of unnecessary worries when relatives and TV News anchors

blare out why most people are making money - because its likely they may not be! If you have selected a

quality portfolio , dont worry about markets every second day - remember that most investors who make

money in markets are the buy and hold variety and not the daily traders who wish to stay ahead of markets

every day and lose several years of savings in the bargain!


12/15


Expert Speak : Mr. Sandip Sabharwal

Turning to a positive stance in the short run as consensusextremely bearish

I have been cautious on the markets over the last 2-3 months mainly due to extremely overbought condi-

tions, global issues - mainly related to the Eurozone as well as the stubbornly high inflation domestically

which has led to extreme tightness in the system and will lead to a short term slowdown in economic

growth. Other factors which have come up over the last 4-5 weeks have been related to various so called

scams in the markets as well as a standstill in governance due to the impasse on the 2G telecom issues.

The markets did correct, however they stopped before the level at which I would have thought that the

correction is over and we can look forward clearly towards the year 2011. In the mean time most bulls have

also turned bearish in the near term and the consensus has moved towards a correction in the short run and

with some technical chartists also predicting that the bull phase itself is converting itself into a bear phase

(extremely farfetched in my view).

Contributing to the strength in the markets have not been high growth emerging markets but markets of the

US and Europe which have held on steadily and continuously moved up even as Emerging markets cor-

rected. This phenomenon has largely been contributed due to the inflation avoidance play in the near term

where economies facing inflationary pressures and thus a tight monetary policy and slowdown in the near

term have been underperforming those which are not facing such pressures. This has infact also led to

greater inflows into US Equity funds vis a vis emerging market funds.

The strength of the US Dollar has also not led to an outflow from EM's as would have been expected in the

short run. However given the near term strength in the US Economy and the woes in the Eurozone the trendshould be for a USD appreciation over the next couple of months. This at some stage should create a

market sell off.

As is normally the case, as the markets started to correct we saw most market participants first turn cau-

tious and then bearish in the near term. The consensus also veered down to a view of a move towards 5400

for the Nifty in the near term followed by an upmove. The markets did correct to below 5700 levels but has

bounced back twice from those levels. Most mid and small caps have also got sold off severely and in some

cases by 30-50%. The initial correction in this segment started from stocks where there were some manage-

ment concerns and then has percolated down to more or less the entire segment where even better known

and established mid caps have got sold off by 30% plus. This I believe creates a good opportunity for inves-

tors to accumulate for the medium term.

Taking all factors into account it seems more likely that we will see the markets have a positive bias till the

year end and into the new year. We could get another sell off sometime later and as such we will need to

watch out for that as the Eurozone issues and Chinese tightening to control inflation still have the ability to

create deep short term corrections.

"More wealth has been destroyed in waiting for corrections than in corrections itself"- Peter Lynch

(Something that I would normally believe in being a bull at heart)


13/15


For Good SIP Returns - Choose a Volatile FundIInvestors interested in an SIP normally ask a question - which is the best fund to invest in?

And usually, the advisor turns to well rated funds that display low volatility and more consistency- prefer-

ably large cap. This ironically is completely incorrect!

SIPs, as the table shows, work best when the fund displays exactly the opposite characteristics of a lump

sum investment - Investors should ideally be looking for high volatility and low consistency. Refer to the

returns in the table for an SIP versus the market, versus a fund that displays 20% more volatility than

market, versus another fund that displays 25% more volatility and versus a fund that is an investor's dream-

delivers better in good markets and delivers less negatives in bad markets! Guess which one outperforms!

Price Movement Units Accumulated

Volatile Volatile Investor's Volatile Volatile Investor's

Month Market Fund 1 Fund2 Dream Market Fund 1 Fund2 DreamFund Fund

1 100 100 100 100 1.00 1.00 1.00 1.00

2 97 96.4 95.68 97.6 1.03 1.04 1.05 1.02

3 92 90.4 88.48 93.6 1.09 1.11 1.13 1.07

4 93 91.6 89.92 94.8 1.08 1.09 1.11 1.05

5 96 95.2 94.24 98.4 1.04 1.05 1.06 1.02

6 98 97.6 97.12 100.8 1.02 1.02 1.03 0.99

7 96 95.2 94.24 99.2 1.04 1.05 1.06 1.01

8 97 96.4 95.68 100.4 1.03 1.04 1.05 1.00

9 100 100 100 104 1.00 1.00 1.00 0.96

10 90 88 85.6 96 1.11 1.14 1.17 1.0411 94 92.8 91.36 100.8 1.06 1.08 1.09 0.99

12 100 100 100 108 1.00 1.00 1.00 0.93

13 96 95.2 94.24 104.8 1.04 1.05 1.06 0.95

14 97 96.4 95.68 106 1.03 1.04 1.05 0.94

15 100 100 100 109.6 1.00 1.00 1.00 0.91

16 95 94 92.8 105.6 1.05 1.06 1.08 0.95

17 97 96.4 95.68 108 1.03 1.04 1.05 0.93

18 92 90.4 88.48 104 1.09 1.11 1.13 0.96

19 91 89.2 87.04 103.2 1.10 1.12 1.15 0.97

20 98 97.6 97.12 111.6 1.02 1.02 1.03 0.90

21 92 90.4 88.48 106.8 1.09 1.11 1.13 0.9422 92 90.4 88.48 106.8 1.09 1.11 1.13 0.94

23 98 97.6 97.12 114 1.02 1.02 1.03 0.88

24 95 94 92.8 111.6 1.05 1.06 1.08 0.90

25 100 100 100 117.6 1.00 1.00 1.00 0.85

26 97 96.4 95.68 115.2 1.03 1.04 1.05 0.87

27 96 95.2 94.24 114.4 1.04 1.05 1.06 0.87

28 90 88 85.6 109.6 1.11 1.14 1.17 0.91

29 97 96.4 95.68 118 1.03 1.04 1.05 0.85

30 93 91.6 89.92 114.8 1.08 1.09 1.11 0.87

31 96 95.2 94.24 118.4 1.04 1.05 1.06 0.84

32 99 98.8 98.56 122 1.01 1.01 1.01 0.8233 97 96.4 95.68 120.4 1.03 1.04 1.05 0.83

34 91 89.2 87.04 115.6 1.10 1.12 1.15 0.87

35 93 91.6 89.92 118 1.08 1.09 1.11 0.85

36 100 100 100 100 1.00 1.00 1.00 1.00


14/15


Total Units 37.66 38.02 38.47 33.67

Market Value 3765.89 3801.94 3846.63 3366.76

Cost of Investment 3600.00 3600.00 3600.00 3600.00

Returns 4.61% 5.61% 6.85% -6.48%

In our opinion, if an investor follows the following conditions before initiating an SIP , she should be laugh-

ing her way to the bank in a few year's time:

1) Should have a fundamental belief that Indian markets will do well in the long term and can behighly volatile in the medium term;

2) Should be willing to continue the SIP no matter how much the markets drop

3) Should be investing into good quality midcap funds, managed by well respected fund managers

Counterintuitive? But True!


15/15


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at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risksinvolved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views

expressed may not be suitable for all investors The information contained herein is obtained and collated from sources believed reliable and

PINC has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is

made as to the accuracy, completeness or fairness of the information and opinions contained in this document

Tactical View for January 2011

Asset Class Tactical View

Indian Equities Positive

Long Term Bonds /Bond Funds Negative

Floating Rate Funds/ Liquid Plus Positive

Gold Positive

Silver Positive

We believe the global economy is not yet completely out of the woods as the data would have to strengthen considerably, especially given headwinds

from Europe and the fear of an inflationary bubble keeping the lid on runaway markets. We expect markets to watch post holiday data carefully to

gauge whether recoveries were one off and an immediate reaction to the easing programmes or are more sustained in nature. Spikes in interest

rates as a function of capital flows / return to risk aversion are therefore not ruled out and we remain negative on long term bonds.

investor guide jan2011

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