RESEARCH CELL WWW.MYMUDRA.IN

Inves tor Newslet terCurrent Scenario

CONTENT

2.1WHAT MAY HAPPEN GLOBALLY

2.2WHAT CAN ONE EXPECT IN INDIA?

2.3WHAT SHOULD INVESTORS DO?

2.4BOTTOMLINE & RECOMMENDED FUNDS

2.5 Disclaimer

INVESTOR NEWSLETTER VOLUME 2 AUGSUT 2013

These are tough times. Markets are volatile, sentiment is weak.

Bond yields have been rather volatile in the last few days. The

rupee has been facing a fair bit of weakness. India’s current account deficit is a matter of concern along with the fiscal deficit. Equity markets have seen a significant correction

already. Investors are looking to make sense of such market conditions to figure out what they can do, both over the short term and also over a longer term.

Let’s endeavor to ascertain what the likely trend will be for equities and fixed income over the short and long term.

2.1 WHAT MAY HAPPEN GLOBALLY?

1 It’s going to be somewhat tough for many markets across the

world that benefited from the flow of easy liquidity. That is one

reason why we are seeing corrections in equities, currencies and

bond markets, including in India.

2 One must expect the volatility in global markets, seen since the

end of May, to persist. It will affect emerging market currencies, bonds and stocks at least for the next month or two. In fact, more

volatility can be expected across the world as the Fed prepares to

discuss the time table for QE (Quantitative Easing) tapering.

3 A series of macroeconomic data will come out of the US in

September, and one of the most important events to focus on

would be the Sep 17th-18th meeting which would likely announce

a timeline for the QE taper and potentially provide some

perspective on the trajectory for short term interest rates as we

get into 2015-16, although that is some time away.

4 We need to be watchful of statements coming out from the Fed. If they tend to be very hawkish, then within the next couple of months,

! >Expect more downside in equities globally

! >US bond yields may go well past 3 per cent

! >Dollar may strengthen

! >Emerging market currencies may weaken

RESEARCH CELL WWW.MYMUDRA.IN

Views on Current Market Scenario

2.2 WHAT CAN ONE EXPECT IN INDIA?

INVESTOR NEWSLETTER VOLUME 2 AUGUST 2013

2.2 Currency and liquidity

1 Over the next two months or so, the rupee may continue to weaken, but not at the

pace that we are seeing. We have already seen it touch 65. Many people had expected

this to happen by the year-end, but it has happened within days. We may not see too

much downside from here, and therefore expect the rupee to not weaken beyond 65

or 66, over the next two months.

2 On the interest rate scenario, the regime of tight liquidity and higher interest rates is not expected to reverse anytime soon. So, a rate cut or easier money conditions may

not happen, at least for the next couple of months.

3 Money market condition will continue to remain tight; in fact it may even get tighter. We do not expect short rates to come off. If anything, they would probably move up a

little more. In the next month or two, we should see 10 year bond yields getting back

closer to 9%, maybe even higher. So one should be prepared for higher long term rates and for short term rates remaining elevated. Based on that, one needs to take a call on

investment in duration funds. (Income Funds & Dynamic Bond Funds Category-Recommendations at end)

Growth Estimates

4 Analysts have reduced their growth estimates. We started the year with GDP estimates at 6 per cent growth rate. That estimate is already down to 5 per cent, and quite soon it may get downgraded to 4 1⁄2 per cent or so. As a result, earnings growth estimates for large cap companies are also lower than what they were at the beginning of the year.

5 Corporate earnings growth expectations at the beginning of the year were around

13-15%. This expectation has now reduced to about 7-8% with some expecting it to be

even lower. If that is the case, then clearly the market, which is trading at 13x – 14x

one year forward P/E is a little on the expensive side and one should be prepared for further selling by FIIs as they evaluate growth prospects for FY14.

6 The markets may fall further by 7-10% from here in the next two months or so in

response to lower growth expectations.

RESEARCH CELL WWW.MYMUDRA.IN

Views on Current Market Scenario

2.3 WHAT SHOULD INVESTORS DO?

INVESTOR NEWSLETTER ISSUE N°3 FALL 2009

2.3 Don’t get overwhelmed by the short term bearish views

1 In fact, if one has liquidity handy, it may be a great opportunity to buy with a one to two year time frame. If the Nifty were to go to 5000 or 4500 (levels we last saw in the fourth quarter of 2011), these would be fantastic levels to buy simply because by the time we get to the middle

of next year, one major event, the elections, will be behind us.

2 As we get into the new financial year, once the elections are concluded and expectations of growth resume, many things can reverse in a hurry. The currency can start appreciating, rates can come off quickly, growth expectations can go from 4 1⁄2 to 6 % and earnings growth, more

importantly, can go from 5-7%, back to 15-20 %. All of that can cause a re-rating in terms of the P/E multiple.

3 By the middle of 2014, if the US economic growth is not seen to be strong as is currently the

case, we could either have a revival of QE or a reduction of tapering. We must remember that QE taper will occur only if the economy is consistently growing and unemployment declining.

But if the economy is again soft in terms of growth expectations, the tapering will stop and in

fact we may even see more QE. That possibility still exists. If that were to happen, then you

would again see a world-wide rally in equities and emerging markets including in India.

4 When sentiment turns and growth expectations are upgraded, we often notice a dramatic

improvement in prices. If one looks at the period in the aftermath of the financial crisis (March

2009 to September 2009), our markets nearly doubled. It was not as if the crisis had ended

and everything was fine. We were just coming out of the shadows of the financial crisis of 2008. Yet, the measures taken thereafter in terms of getting the economy back on track

contributed to a dramatic improvement in sentiment and prices.

! ! Don’t miss the inflection point

5 It’s alright to be negative based on data, but at the same time one must not get too negative or we may tend to miss the inflection point. When the inflection point comes, the upward move is very swift and if we miss it, we have to wait a long time before we get another similar opportunity.

6 Anybody who missed the move from March 2009 to September 2009 would have found that since then the markets have pretty much been in a consolidation mode. It was not until the

third quarter of 2011 when there was a market correction, that one got another opportunity to

buy equities at an attractive valuation level.

RESEARCH CELL WWW.MYMUDRA.IN

Research Desk Contributor Contact

research@mymudra.in Prateek Pitalia +00 91 9301 39333 PGDBM,AFP, CPFA +00 91 788 4050883

INVESTOR NEWLETTER VOLUME 2 AUGUST 2013

2.4 THE BOTTOM LINE

• While times will be tough for another month or two, or even may be till the end of the year, there will come a fantastic buying opportunity in the next couple of months

• If investors are able to buy at the current levels or better still, invest at levels 10% or so lower from here, they should take advantage of the opportunity and then remain invested for at least a year

• One year from now, the economic outlook is expected to be much better than what it is today and the same is also applicable as far as bonds are concerned. It will be tough going

for another two or three months as market liquidity is tight. Bond yields may rise, and if they

move higher than where they are, then i think one can consider buying income funds or dynamic funds and then remain invested for 6 months to a year. However, while the increase

in yields will provide a good buying opportunity now, they will come off by the middle of next year or the second half of next year, in our opinion.

• If the choice is to invest in either bonds or equities, then, there seems to be relatively greater upside potential in equities, in our opinion.

Equity Category Debt/Bond Category International Equity

DSP BlackRock Opportunities Fund IDFC Dynamic Bond Fund ICICI Pru Global Stable Equity Fund

IDFC Sterling Equity DSPBlackRock Strategic Bond Fund DSP BlackRock US Equity Fund

ICICI Pru Banking & Financial

Services

Birla Sunlife Dynamic Bond Fund ICICI Pru US Flexible Equity Fund

Franklin India Bluechip Fund Templeton India Short Term Income

Plan

2.4.1 RECOMMENDED FUNDS

DSICLAIMER: The views expressed are as of 27/08/2013 & may change as conditions vary. The views expressed are of our Research Team’s Technical & Strategic analysis. We advise investors to discuss their Investment Plan with our Research Team before executing. We also suggest to not imitate

these reports for mass circulation.