Wealth Creation Through Indian Equities April 06

1. Wealth Creation Through Indian EquitiesApril 06

2. Assessment of India Opportunity

3. Size of opportunity • Size of Opportunity: • India’s current GDP is $ 725 bn • Current market cap is $ 550 bn (75% of GDP) • Among the developed economies the GDP to Market Cap ratio is 100% to 150% • Now, • Considering GDP growth of 7.5% p.a. and inflation at 4% • - Indian economy will reach $1.25trillion in 5 years ($725bn growing at 11.5% p.a.). • - At a Market Cap:GDP ratio of100%, the market cap at the end of 5 years will touch US$ 1.25 trillion

4. Quality of opportunity • Quality of Opportunity: • Capital formation – wealth creation and rapid growth are favorable conditions for equity as an asset class vs. fixed income. Indian economy and businesses are putting their best foot forward in enhancing these conditions. • Today, equity as an asset class is a very small proportion of household savings and therefore, the scope for it to grow. • Low interest rate makes a favorable case for equity as an asset class as opposed to any other conventional investment avenue. It also increases the propensity to consume more and in turn help business and economy growth. • Tax arbitrage is in the favor of the investor, thanks to the 2005 budget and therefore, increased participation by the retail investor in the capital market. The same direction continues with the recently announced budget proposals.

5. India and the BRIC Nations

6. The future of India (BRIC Report) • Indian economy will be the fastest growing economy over the next 3 - 5 decades* • In $ terms, Indian economy will be one of the largest in the globe* • India’s per capita income in $ terms will grow by 35 times in the next 47 years ( i.e. 2050)* • Indian rupee is likely to appreciate by almost 300 % next 3 – 5 decades * • India has a trade surplus with China** • India is a research hub to the world *Quoted from Global economics paper 99 – Goldman Sachs ** As per data sourced from Chinese government

7. GDP Growth – BRIC vs G7 Source: World Wealth Report 2005 by Cap Gemini & Merrill Lynch

8. Financial Wealth Forecast 2004-09 Source: World Wealth Report 2005 by Cap Gemini & Merrill Lynch

9. HNWI Population Growth Source: World Wealth Report 2005 by Cap Gemini & Merrill Lynch

10. Growth In Indian HNWIs Source: World Wealth Report 2005 by Cap Gemini & Merrill Lynch HNWI defined as one with US$ 1 mn in assets/wealth

11. India – Market Cap:GDP Ratio

12. India within Asia

13. India - Best performing on 3/10 year period

14. India and The World

15. India will add more wealth in next ten years than it has added in the last fifty years In sum, transforming economy poised for sustained robust growth

16. India at a glance

17. India at a glance..2

18. CSO pegs growth at 8.1 pc Estimates of the Central Statistical Organization (CSO) surpass expectations of the Central Bank and Finance Minister

19. Reservoir of intellectual capital • A meritocratic education system – special focus on English, Science & Maths • Success rate for admission to the top technology institutes - IITs 2%; Harvard 10%. • 250 universities, 1,500 research institutions, 10,000 higher education institutes. Over a million graduates produced every year • Pool of 23m professionals – doctors, graduates, masters, engineers – increasing by nearly half a million every year • Historically, India a net exporter of talent – Indians makeup a significant proportion of Microsoft, IBM’s development teams or Intel’s scientist pool.

20. Unmatched Demography • One quarter of the world’s youth live in India • 54% of the Indian population is less than 25 yrs of age • By 2013, the net addition to the productive population (aged 25-44 yrs) will be 91 million or 33% Today’s youth … …will drive tomorrow’s boom Source : Statistical outline of India Source : www.childrendatabank.org

21. Fastest growing free market democracy India registered a growth rate of 8.2% in 2004-5. J P Morgan has revised its 2005/6 forecast to 8.0%; UBS to 7.9% and Morgan Stanley to 7.3% According to Goldman Sachs, among Brazil, Russia, India and China, India will grow the fastest over the next 30 to 50 years by leveraging its demographic advantages and continued development. At its present rates of growth, `it would be adding nearly one France every three and a half years and one Australia every year.’ According to a Manpower Employment Outlook survey for the first quarter of 2006, India leads other countries with a positive overall net employment outlook of +27%. Disposable incomeshave multiplied five times between 1995 and 2005, leading to three-fold increase in consumption. Today, India’s growing 400mn strong middle class is driving demand, competition and productivity like never before.

22. Consumption led growth to continue

23. Reformist regimes propels growth India Inc raised a total of US$ 32.14bn in 2005, up 50% over the US$ 21.31 bn raised in 2004. At least US$ 17.8bn (56%) of the money raised was foreign money according to Bloomberg data. India now has eight competing carriers and is the world’s second largest commercial aircraft market. On-time performance and service levels have risen dramatically and fares have dropped. Passenger traffic is expected to grow by 20% annually over next five years. In the automotive sector, deregulation-sparked competition has led to rapid all round growth. Total annual car sales have increased from around 150,000 in 1991 to more than 1,000,000 today while employment has trebled in the industry. Extensive reforms has also affected India’s capital markets, corporates and individual tax regimes and judiciary.

24. (US$ tn) 12 9.8 10 8 6 5.1 3.2 4 2.9 2.1 1.4 1.4 1.4 2 0 Italy India Japan China United States France United Kingdom Indian households - scope to leverage Germany Source : Asian Development Bank, OECD Size And Scale • India the 4th largest economy in the world • PPP adjusted GDP of US$1.7 trillion • Positive work ethics, conservative attitude towards spending • Household savings to GDP – 25% • Retail debt to GDP – 6% • Only 5m credit cards, versus 170m bank accounts 4th Largest economy (in PPP terms) Source: World Bank

25. Corporate capex & infrastructure Capacity utilization in key sectors (%) & capex trends

26. World in terms of Purchasing Power Parity

27. Indian Corporates, Markets and Risks

28. Essential corporate statistics • India displaces US, is No.2 in FDI flows after China (AT Kearney Report) • Bharat Forge, world’s second largest forging company attains No.1 status in China • Twenty of India’s top 100 companies ranked by market capitalization, generate 50% or more revenue from global sales • Notable being Reliance Industries, JSW Steel, Sesa Goa, Arvind Mills, Cummins India and Hindalco • Sixty of the top 100 Indian companies earn at least 10% of their revenue from global sales • Top 300 firms commit about US$ 60bn, with 50% each for greenfield and brownfield projects to be funded at least 50% from internal accruals • Telecom and power 20%, Oil and Gas 15%, Metals 12% and Steel 7% • Indian companies (1,115) distributed 28% of net profits in FY04 (Rs 33,517 cr) and FY05, highest since FY 01 • India stands no.1 in three wheelers, no.2 in two wheelers after China, no.5 in trucks and buses and no.12 in cars and utility vehicles; India to clock 10 mn mark in automobiles sales for FY06 • IT-ITes revenues to touch US$ 28bn by March 06 against US$ 22bn in FY05, says NASSCOM

29. Corporates charging ahead Source: Business Standard 2005 Outlook – December 2005 edition

30. Visible paradigm shift in Indian firms • A significant trend is the expansion of mindset and horizons • Indian companies being globally cost competitive • Tisco, Guj. Ambuja, Tata Motors, Hindalco • Indian companies acquiring companies globally • Ranbaxy, Tata Motors, Tisco, Bharat Forge, Kirloskar Brothers, Amtek, Sun Pharma, etc • Indian companies gearing up to global size • Infosys, Tata Motors, Bharat Forge • Indian companies becoming global sourcing hubs • Sundaram Fasteners, Kirloskar, Cummins, Moser Bear, Bharat Forge • Indian companies expanding through internal accruals and focusing on superior cash flows

31. Indian Corporates – efficient & healthy

32. Buoyant profit growth in quarter III

33. Top 15 Private Equity and Venture Capital Deals Source: Business World (BW Grant Thornton Tally)

34. Top 15 Merger & Acquisition Deals Source: Business World (BW Grant Thornton Tally)

35. 12 month forward target for Sensex

36. From being undervalued to fairly valued

37. Trends in mutual fund and FII net investments

38. Concerns remain.. India’s deficit highest in the region Deficits likely to remain intractable While interest payments as a % of total expenditure are high India’s Tax – GDP ratio is low

39. Summing up • Present Scenario • Sensex is EVA positive • Markets reasonably fairly valued • Warrants astute stock-picking ability • Earnings yield higher than bond yields • Secular growth ahead…. • …but be ready for intermittent volatility

40. Thank You