1. MAY13 HBJ CAPITAL VENTURES LLP Annual Newsletter: HBJ Capital Ventures LLP To The Partners & Co-founders, HBJ Capital Ventures LLP, #912, 1F Main, Girinagar, BSK 3rd Stage, Bangalore 85, Karnataka, India Dear Partners, Indian stock markets had a good month of May with the SENSEX rising by about 2.5% and contrary to the market saying of "Sell in May and go away". What has been very surprising has been the strength in the Markets despite the Currency weakness. Rupee - Dollar conversion is at a 10 month low of around 56.5 and very near to its all time low. The real picture has been the strengthening of the Dollar and not the weakness of Rupee as such. But while several countries across the globe have been trying to devalue their currencies for competitiveness, this is not a bad situation to be in. Considering the fact that, this is coupled with softening Commodity prices Rupee weakening is not a big negative for India. Global Equity Markets are on a Roar on the back of continued Liquidity. Certainly in the Short to Medium Term - Equity performance are more a function of Liquidity and Sentiment. This can be proved from the fact that - Pakistan (One of the most Vulnerable country on Political and Macro stability terms) and Germany (Epicentre of Euro Crisis) are sitting at life time Highs. Other than this, anyways we know that both the NASDAQ, Dow and Nikkei are inching upwards continuously. Indian Stocks continue to be buoyant with the Markets continuing to inch towards lifetime Highs. Despite the Markets rallying towards Highs, there is no change in Sentiment across the Street. In fact, there is a huge disbelief in the Rally and everyone expects the Rally to fizzle out and markets to grind down going forward. Being a student of Market, we clearly understand that - Market never goes in the direction of consensus and hence it would continue to surprise many and will suck up the non-believers of the rally before any significant correction. Other than that, we believe there is a case to be made for a secular Bull Market which can last for many more years. While the Political process and Global Macro needs to be supportive for this Multi-Year bull market - we understand that "Bull Markets climb wall of worries" and hence these issues will get settled as time goes by. While there can be uncertainty, there is no better time to Invest like a #912, 1F Main, Girinagar 2nd Phase, BSK 3rd Stage, BLR - 85Page 1

2. MAY13 HBJ CAPITAL VENTURES period of Uncertain markets. Even in a overall difficult scenario, there is a case for LLP several good stocks to compound strongly. While Indian Markets are inching towards its highs, there are several stocks which are way off behind their High points and in fact trending lower. This can be seen quite evidently from the Breadth of the markets. Markets are moving up with a select set of stocks which we believe, will spread over a period of time. We are not into beating Markets Quarter on Quarter and hence will not chase Momentum. We are ready to underperform in the short term for better Long Term performance. You can see that the last year has been a difficult one for Value Investors where we have seen Costly stocks getting Costlier and Cheap stocks getting cheaper. But as History shows, this polarization cannot continue for a long time and if an Investor can pick up the right set of stocks and has conviction to digest the volatility there is potential for Huge profits in select stocks. We believe that our Portfolio consists of lot of those stocks, where the potential for a 3 Year investor is huge irrespective of the Macro situation. We would also like to write about our Views on the most important debates of our time. There has been several viewpoints on Quantitative Easing, Austerity, Bond Yields, Emerging Markets, Fiscal Deficits etc. The more important question in the minds of most Global Investors who drive markets are that of withdrawal of this Liquidity. Japanese Stock Markets has shown some shakiness with the Nikkei which has been on fire from the start of the year witnessing over 14% correction over this month. The jitters in stock markets primarily come from the early withdrawal of stimulus of Quantitative easing which has flooded the stock markets across the globe with huge liquidity. So, any data which points to this liquidity withdrawal has a huge impact on stock markets. There has been an Macro experiment on an unprecedented scale and everyone is nervous about how the whole thing is going to end. Everyone knows that, Central Banks across the Globe are continuing to flush the world with Liquidity and there is also no doubt that it's a liquidity driven rally. We are also knowing that there is enough money in Japan to provide a 10X multiplier effect on the Credit. There is similar 5-10X potential credit which is being unused as there are no real borrowers. While the pessimists see this as a potential threat to flare up Inflation going forward, the Keynesian Economists look at it as the seriousness of the crisis and justify their unconventional Quantitative easing. Everyone agrees the fact that this Quantitative easing will build up asset bubbles across Equities and other Yielding asset classes. But this alternative is looking far#912, 1F Main, Girinagar 2nd Phase, BSK 3rd Stage, BLR - 85Page 2 3. MAY13 HBJ CAPITAL VENTURES better that the Austerity as imposed by Europeans without giving a thought about the LLP Reflexivity of Markets. While this can't be a solution to the Structural issues which these economies face, it at least provides space for this correction along with incremental improvements as we move forward. This is allowing a repair of several personal and corporate Balance sheets and helping the Economy to slowly get off its feet. While the whole Market participants are speaking about the withdrawal of Stimulus continuously - we believe that, either the Prices are already factoring it or it is not going to have such a big threat as being projected now. We have time and again seen that the majority always get its wrong and big Cracks happen when something comes out of the blue and not an issues which are being widely discussed. Just to give a snapshot of these things over the last few years there has been several sayings like - "Dollar is going to collapse, USA will lose its Economic supremacy, Gold will reach 10000 $'s, Euro Zone is history, Interest rates will move up etc". While the real problems of Subprime crisis, the PIIGS issue was never widely discussed and these were the real game changers in the market. This makes us believe that, a widely debated stuff like Stimulus withdrawal will not have a major effect on the Global markets over the medium term. Leaving aside these Behavioral points, even Economic sense says that - a slow and steady recovery can't initiate an Inflation trigger or Credit bubble. While there certainly can be corrections and Irritants in the way, we believe that the world will come to terms with a Post QE scenario and it should not fear us as being projected by many. One real risk which we see are the fact that - Once Bond Yields starts to rise, there is huge scope of losses which the Global equity markets are staring at. Mostly on the banking side, where there will significant losses on their Bond Portfolios. We believe that with a slow and steady recovery, a smooth withdrawal can be managed or at least will not create the damage as some of the Nay Sayers will make us believe. Two clear areas which are getting heated up and where need to be cautious, are the Global Equity markets in general and the debt markets in Emerging countries. More importantly, flows into emerging markets Debt Markets is huge and there is a bubble building up. For example, Rwanda raised 400 Million $'s to build a convention centre and this clearly shows the amount of liquidity which is sloshing around. Also Junk bonds and other risky instruments are moving up swiftly. While these bubbles will be the side effects of such Monetary response and they would get corrected, but the Doom scenario is unlikely to happen as discussed by several Analysts.#912, 1F Main, Girinagar 2nd Phase, BSK 3rd Stage, BLR - 85Page 3 4. MAY13 HBJ CAPITAL VENTURES Here comes the real LLP we are concerned with. India is much more risk which vulnerable to these Liquidity bubbles, considering the huge Current Account deficit. Without enough money flowing into Debt and Equities, we cannot finance the huge Deficit. Hence there will be some Volatility going forward. We as investors need to live with this Macro Economic volatility and hence it is very important to have a pretty long term mindset while investing in good businesses. These Events and Market actions have an impact over a 1-3 year time frame, as we have seen before. But over a 3-5 Year time frame, Returns on our Bottom up stock picks will get decoupled and there will be enough opportunities for a smart Investor. Hence, we believe that whatever may come - there is significant wealth creating opportunities in several of our stock picks, if we are ready to Hold on to them. There is no questioning the fact that, in these Volatile times - it can be your best bet amongst all asset classes. Let us come to our Individual stock picks. We believe that the Portfolio has delivered mixed results in the Quarter gone by. While Incrementally there has been improvement in the performance of companies like XX & YY - they continue to be under short term stress. We believe that the Portfolio continues to have good Businesses and adequate diversification. While the near term Out-performance can't be guaranteed, with a good Investing framework which we follow - the long Term Alpha creation and Out Performance will definitely be there.Regards,[Principal Fund Manager, HBJ Capital Venture LLP] Date: April 31st 2013, Place: Bangalore, India#912, 1F Main, Girinagar 2nd Phase, BSK 3rd Stage, BLR - 85Page 4