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AGENDA

Indian Economy

Primary market

Secondary market

Challenges

Silver Lining

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Indian Economy Economy witnesses structural growth

2004-05 onwards growth is singularly upIndustry & services both support the growthConstruction and manufacturing drive the

industryTrade !otel Telecom and "#$I drive services

GDP growth to maintain its momentum%obust infrastructure investmentCapital e penditure by India inc

'alue drivers to fuel $ervices growth

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Indias domestic saving andinvestment

Source: CEIC and Lehman Brothers.www.a2zmba.com

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Economy witnesses structural growth

www.a2zmba.comSource: CSO, Cygnus Research

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GDP growth to maintain itsmomentum(anufacturing to witnessstrong growth ahead on bac) of- Infrastructure spending of

govt*

- Cape by industries

www.a2zmba.comSource: Planning Commission, Cygnus Research

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Value drivers fuelling Services growth$ervices growth to be led by

- +opulation shift from rural to urbanareas to give volume growth moreservices- Infrastructure development to fuellogistics ,%oadways %ailways +ortsand irports. growth

- India continue to dominate asoutsourcing hub of services of theworld- !igh domestic and foreignInvestment and funding to augurgrowth for "#$I*

- India emerging as important touristhub to fuel growth for hospitality- Change in reforms and fall in mobileprices adds growth to telecom services

www.a2zmba.com Source: Cygnus Research

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Primary Mar et

/inth largest I+ mar)et in the world*

1lobal mar)et share 3 *

India stands in 2 nd position with respect toI+ proceeds registering 66 growth

7T8*

9 pected I+ o:erings 200; *65bn

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Secondary mar etIndia poised for growth in comparisonwith international mar)ets

- +?9 %atio and international comparison forthe recent past

- Turnover e pectation and internationalcomparison for the recent past

- 'olatility in "$9 $ense and C/@ /ifty andinternational comparison for the recent past

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Stoc mar et statistics

NSE BSE

Market capitalisation (INRbn) 42,588 45,091

Market capitalisation ( S!bn) 1,0"1 1,1##

Market cap $ %&' (200 ) 85$ 89$

ol*+e (+illion #0 -a. a/era e) 49# " #50 4

al*e ( S!+ #0 -a. a/era e) 2, 9" 90 1,222

&eri/ati/es tra-in /ol*+e (options an- *t*res INRbn #0- a/ ) 494 9

&eri/ati/es tra-in /ol*+e (options an- *t*res S!bn) 11 9

No o co+panies liste- 128# 485#

Source: BSE, NSE, World ederation o! E"changes, #atastream, Bloom$erg.

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!rea down of sectors "y mar et ca# for India$ EMand %orld

In-ia 3orl- EMB SI IN& S6RIES 8$ 8$ 1#$'I6 7 % &S 10$ 9$ $NS MER 7I 7S 1#$ 12$ 9$NS MER S6 B7ES 5$ 8$ 5$

ENER% 1 $ 9$ 21$:IN N I 7S ; INS R N E 14$ 24$ 24$

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India #oised for growth with internationalcom#arison

Currently turnover velocity is relatively low at 30 for "$9 and 6> for /$9*%atio is e pected to improve at least closer to other matured mar)ets*

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Source : World ederation o! E"changes.

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&II In'ows drives secondary mar et

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Source : SEBI.

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Volatility to remain high

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2003-04 Lower Base S+all :ree :loat Political Instability RBI policy

2007-08 & beyond Integration with World Economy Economy Growing very fast GDP growth sl mps in

Developed World

Source: SEBI annual re&ort, Cygnus estimates

Factors influencing

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Valuation

+?9 multiple International comparison

'aluation metrics

'aluation 1rowth drivers*

$ectoral growth - mar)et perspective *

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P(E Multi#le ) International

*om#arisono*ntr. In-e= 6railin 12 +ont> '?ES S;' 500 1" 99

@ :6SE 100 1# 50

:rance 1# 89

%er+an. & A 14 21Spain MIB #0 14 88

apan Nikkei 225 #5 "9

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Valuation multi#le is +usti,ed

!istorically average +?9 for Indianmar)ets >*2>*

#70A forward +?9 B -- 9merging mar)ets 3*5*

- Indian (ar)et >*

+remium,33 . for high growth*

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!SE -. earnings and Indian GDP

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Source: BSE, #atastream, Lehman Brothers, OEC#.

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*a#e2 to sales ratio

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Source: %SE, Worldsco&e, actset, Lehman Brothers.

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Indian listed non3,nancial com#aniesfree cash 'ow

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Source: Lehman Brothers, %SE, Worldsco&e, E"share.

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De"t3to3e0uity ratio

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Source: Lehman Brothers, %SE, Worldsco&e, E"share.

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Indias Altman 43score

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Source: Worldsco&e, Com&ustat, IBES.

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Indias #ayout ratio

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Source: Lehman Brothers, BSE.

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Valuation Growth driver Fong term earning growth at 5 in line with nominal 18+growth gives moderate +91 at slightly above *Gide Interest rate di:erential between India and other maHoreconomies will lead to continuous li uidity Jow -particularly

7en carry trade*

"ull mar)et entering phase II Increase in appetite fore uities from domestic investors would lead to a stage wheredomestic investors will start owning their own mar)ets*Kuality earnings growth indicated by higher % 9 would leadto higher valuations*Investors paying for growth as a result valuations will ta)e abac) seat

ll these coupled with low Joating stoc) would create asituation where demand for e uities would outweigh supply*

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Sectoral growth ) Mar ete2#ectations

$ectors trading at premium valuations mar)et perceptionof higher growth*

$econd phase of bull mar)et growth driven less chance ofLnding value*

Sectors Premium tomarket.

Retail 12 $

Me-ia 88$

In rastr*ct*re 59$

En ineerin 54$

:M % 25$

tilities 18$

I6 2$

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Source : BSE

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*5A66ENGESPolitical /is

3

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Vulnera"ility indicators of Indiaseconomy

In-icators DSa et>res>ol- : 91 : 05 : 0 : 0"

:orei n reser/es?i+ports bo/e 1 2 14 9 12 2 12 #

E=ternal -ebt as $ o %&' BeloF 50$ 28 " 18 0 15 8 1:orei n reser/es ? s>ort ter+ e=ternal -ebt bo/e 1 0 # 24 2 1 " 1 0

*rrent acco*nt as $ o %&' bo/e #$ # 1 0 4 1 1 1 1onsoli-ate- iscal balance, $ %&' bo/e #$ 9 4 " 5 " 5 1

onsoli-ate- p*blic -ebt, $ %&' BeloF 50$ 4 9 82 "9 5 "8

'ri/ate cre-it as $ o %&' BeloF 100$ #0 2 ## 9 41 1 4 #

3'I in lation, $ . o . BeloF 5$ 10 # 5 4 4 5 4

Non per or+in loan ratio, $ BeloF 5$ n a 4 9 # # n a

Source: CEIC, RBI and Lehman Brothers. %he 'sa!e( thresholds are our o)n su$*ecti+e estimates.

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