Investment Strategy - XIV - Runup to Union Budget 2014 -15

Round one re-rating for equities over…Time to get stock specific

• Since 8^th Dec13, when the outcome of 4 state elections were out and hope of BJP forming govt at the centre were running high, Nifty has delivered returns of 18%. Many stocks has outperformed the Nifty and has delivered superior return on the hope of revival in their business and likely exponential earning growth during FY14-FY18 period. At CMP, the Nifty is trading at P/E of 15.6X and 13.4x FY15E and FY16E earnings respectively.  Valuations are still reasonable and there is further 10-15% scope of appreciation over next 1 year.
• We believe that, first round of re-rating in domestic equities is over and majority of the listed companies has participated in the rally, only difference being the varying percentage of gains.  Going forward, investors need to take sector/stock specific approach and play on
1. Companies in various emerging sectors like Agriculture, Sanitation, Real Estate Ancillary, Water, Healthcare, Electronics Hardware, Defence, Tourism  etc.
2. Various events like Union Budget, RBI Policy, International events like US FED meetings, Geopolitical tensions etc;
3. Play on full turnaround of companies, especially which are likely to get fully restructured.

Govt sending right signal during first 30
days

 Over last 30 days, the new government at the Center has been giving right signals with focus on

 Setting up an system so as to bring in transparency and mechanism to ensure faster time-bound decision making. Here, the
government’s aim is to reduce bureaucracy and red-tape, which will make doing business easier in India for both domestic and
international players. For e.g: Online process has been introduced for environmental and forest clearance.

 Revival of various sectors. For eg, Excise duty relief on auto, consumer durables, capital goods extended till 31st Dec14; Increase
in import duty on sugar and interest free loans to sugar millers so as to ensure clearance of past dues etc

 Merging of various supplementary ministry, so as to ensure faster and sensible decision making.

 Clear line of communication between various ministries and common people/investors at large. During last one month, we have
seen various ministries updating on their policies and likely steps to be taken through various media sources.

 Taking few hard decisions like steep hike in passenger and freight increase, although, passenger fare hike upto first 80 kms were
rolled back. Moreover, the govt is committed to ensure end of diesel subsidy and going forward, we may see gradually monthly
hike in LPG/Kerosene prices.

 Bringing food inflation under control, with sensible 0-5% hike in MSP for 2014-15 Kharif season. This is against the irrational
hikes given by the previous government which was stocking inflation. PM has been monitoring the rainfall and inflation situation
closely along with FM and Agri ministry.


Round one re-rating for equities
over…Time to get stock specific

 Since 8th Dec13, when the outcome of 4 state elections were out and hope of BJP forming govt at the centre were running high, Nifty
has delivered returns of 18%.

 Many stocks has outperformed the Nifty and has delivered superior return on the hope of revival in their business and likely
exponential earning growth during FY14-FY18 period.

 At CMP, the Nifty is trading at P/E of 15.6X and 13.4x FY15E and FY16E earnings respectively. Valuations are still reasonable and
there is further 10-15% scope of appreciation over next 1 year.

 Many stocks from the erstwhile languishing cyclical sectors, viz, Infra , Capital Goods, Real Estate, PSU Banks, Metals/Mining,
Automobiles, Cement, Oil and Gas etc has more than doubled during last 6-8 months.

 We believe that, first round of re-rating in domestic equities is over and majority of the listed companies has participated in
the rally, only difference being the varying percentage of gains. Going forward, investors need to take sector/stock specific
approach and play on

a) Companies in various emerging sectors like Agriculture, Sanitation, Real Estate Ancillary, Water, Healthcare, Electronics
Hardware, Defence, Tourism etc.

b) Various events like Union Budget, RBI Policy, International events like US FED meetings, Geopolitical tensions etc;

c) Play on full turnaround of companies, especially which are likely to get fully restructured.


Sectors to focus on till Union Budget

 We believe the Union Budget 2014-15 need to do balancing act between growth and fiscal consolidation.

 On one hand, government need to give kind of stimulus package by announcing various incentives and increase public spending so
as to start virtuous cycle of growth. On the other, government need to shore up its revenue, so as to keep fiscal deficit under control
to 4.2-4.5% of GDP.

 Additionally, street will look for concrete fiscal consolidation roadmap in medium to long term.

 We believe few sectors which are likely to boost in the upcoming Union Budget are: Agriculture, Defense, Electronic
Hardware, Sanitation, Healthcare, Water, Power, Housing/Real Estate, Construction, Insurance, PSU Banks, Automobiles, IT
Tourism and Railways.

 On next slide, we have elaborate likely steps that will be taken in each sector and the key beneficiaries.