1. NOV12 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, The Month of November has seen a See-Saw swing in Markets with the first half being lackluster and the last week providing booster returns. Both Global and Local cues have been favorable to the market enabling it to deliver good returns this week. While people have already started predicting about December's Santa rally and a new high for Markets next year, we believe that our guess is as good as any of them. The Mid-Caps and Selective stocks in general have had strong Runs over the past Month. In line with this, our Portfolio has delivered decent returns over the month. Good Equity returns this year has been the result of very low expectations which were set in Markets last year. Market returns are always a function of Expectation sentiments versus the output. Consider this, The Best Stock market for the year has been Greece which has gone up by 65%. This doesn't say anything about its Economy, it just denotes that the country has performed better than what many pessimists made us believe. It's not to say that Economy and Stock Market performances are totally independent, they do have a correlation over the longer period. There are two very structural reasons, why Indian Equities will do tremendously well over the next several years. One is the fact that, India has several irreversible growth drivers which will continue to deliver very strong Economic growth. The second most interesting reason has been the Low expectations which the country has on Equities as an Asset class. This can be seen from the utter disregard for Equities in People's allocation. It's the foreign Investors who are driving the Markets and even after a decent rally, Indian retail investors have not shown any signs of coming back to the Market. It is said that Indians own Real Estate worth 10 Trillion Dollars, 3 Trillion Dollars of Gold and around 300 Billion Dollars of Equity. Equity in the overall allocation of Domestic Investors has been steadily coming down over the years. #912, 1F Main, Girinagar 2nd Phase, BSK 3rd Stage, BLR - 85Page 1

2. NOV12 HBJ CAPITAL VENTURES While even in 1991, Indians had around 11% of their wealth in Equities, it has now LLP come down to 1%. The short term reason for this has been the Huge Underperformance of Equities which has led to their Purchasing power losing more than 20% over the last 5 years. Intelligent Investors have clearly used the selling of the last 5 years to accumulate all the Free Float in Quality companies. So even small Incremental fund flows will push up Equity prices substantially. Indians save over 300 Billion Dollars and at some point of time, a good chunk of it will need to come into the markets. This presents a very good future for Investors who have been building a Strong Equity Portfolio. The Structural reasons for Under-Ownership of Indian equities has been, Financial middlemen who have guided Investors wrongly leading to a total distrust towards Equity markets and also the Performance of competing Asset classes. While the Regulatory framework for Middlemen has been evolving, the bigger challenge has been the performance of Asset classes like Real Estate and Gold. Both these Asset classes in virtue of better trailing returns have sucked up huge amounts of Investments, with small ticket savings moving towards the Yellow metal and the longer Investments towards Real Estate. Strong money inflows into these sectors continue to drive them even higher. One of the major reasons for continuous money flow into Real Estate has been, India's large Parallel economy triggered by huge Black Money has very few avenues to get deployed. Equity markets are decently Regulated and it has become difficult to play with black money. So combination of Black Money, Speculative Investments and Real demand have together created a great liquidity boost for these asset classes. High Inflation has also taken a toll on Financial savings. As the economy moves forward, several of these issues would need to be resolved, thereby leading to better environment for Businesses. Reserve bank of India has often been criticized for keeping Interest rates high. Everyone knows that Food inflation or Imported Inflation can't be controlled through Interest rates and that the High Interest rates have led to distortion of lot of interlinked Macro-Economic variables like Slow Growth, Rupee Depreciation, High Fiscal Deficit, Financial Outflows, High Current Account deficit etc. But still RBI has to keep High Interest rates to incentivize savers in Bank Deposits and to check Asset Inflation. Any cultural shift in minds of people to not put money in FD's and instead use Gold and Real estate will be very difficult to reverse leading to a Bubble like situation. Also the argument of higher Interest rates withholding the Supply response to Inflationary pressures doesn't hold true. It is actually Government's policy decisions which withholds Supply response.#912, 1F Main, Girinagar 2nd Phase, BSK 3rd Stage, BLR - 85Page 2 3. NOV12 HBJ CAPITAL VENTURES Pressure on the Government to get its Policy right, will ensure good structural LLP corrections which are required to take the Economy into a higher Growth trajectory. Its reforms like GST which can bring down Interest rates structurally lower. At the same time any reversal in Interest rates will also turn the Vicious cycle into a Virtuous cycle, both in terms of sentiments and Macro- Economic variables. With good noise about Policy actions in various areas, we can only hope that Mr. Chidambaram and Mr. Subbarao walk together. While the direction of the economy is clear with a strong future, it's the pace which can be fast forwarded by their actions. There are several things which need to fall in place for a Secular Bull Market, from Economic growth to better Equity participation from Indians. Though it's difficult to say, when things would turn - what we can say for sure is that if India wants to grow as a Economic Superpower, Equity Culture will pick up. While its already 5 years since the old bull market, in the next few years all the bad memories of Equity losses will fade away to give way for fresh fund flows. But it would be bad for Investors, to buy stocks at costly levels when compared with current cheap levels. While Secular Bull Market is difficult to predict, we certainly believe that a Bull Market in Good Quality businesses across sectors will continue for sure. In any country, it's only logical that Good Businesses will always earn better returns than any other Asset class. With a Strong Portfolio of companies which have Structural growth opportunities accumulated at cheap prices, we expect good profits. With expectations of a slow grind down in Interest rates going forward, our Portfolio is well geared towards a fall interest rate regime. The good thing about the stocks in the portfolio is that, Interest rate is just a booster for these stocks. The core Investing rationale is still the Business Quality, Growth and Re-rating opportunities presented. While there are a few stocks where there have been mistakes, we would like to clear these going forward and the resultant portfolio will be of High Quality businesses. Quality of our Portfolio can be seen from the Outperformance of Sensex during both Good and Bad periods of the Market. We expect to perform even better going forward compared with the Broader markets, which is the basic requirement of Active Investing. While beating markets over a short period of time is difficult, we continue to believe with disciplined Investment combined with Strong Research We would be able to able to beat markets consistently over any 3-Year rolling periods earning good Profits for our Partners.Regards,#912, 1F Main, Girinagar 2nd Phase, BSK 3rd Stage, BLR - 85Page 3 4. HBJ CAPITAL VENTURES LLPNOV12[Principal Fund Manager, HBJ Capital Venture LLP] Date: October 31st 2012, Place: Bangalore, India#912, 1F Main, Girinagar 2nd Phase, BSK 3rd Stage, BLR - 85Page 4