Advice for The Wise January 2014

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Information about Advice for The Wise January 2014

Published on March 6, 2014

Author: KarvyPrivateWealth


ADVICE for the WISE Newsletter –JANUARY 2014 1

Contents Index Page No. Economic Update 4 Equity Outlook 8 Debt Outlook 16 Forex 18 Commodities 19 Real Estate 20 2

From the Desk of CIO Dear Investors, The assembly elections during December fuelled an already Growth below 5% seems to have become an acceptable level. strong investor optimism, at least on the institutional side. While the argument that it cant get much worse has some Retail investors continued to be net sellers through December. merit, the overdependence of a revival on significant Debt markets received a positive surprise in the RBI improvement in governance after the general election seems announcement of status quo on rates. Globally, US economy somewhat dangerous. For now though, investors seem to threw a positive surprise. Hence even though tapering finally have already assumed the best on this front. began, the markets around the world reacted to it rather calmly. We believe that growth revival is likely partly due to easing of Going into 2014, the economic outlook remains confusing. With food inflation getting entrenched and WPI inflation also refusing to stay down, monetary policy easing seems rather far. The pause in rate hike may not last long if inflation continues at current levels. On the positive side, the trade balance seems to have adjusted towards a better level on the back of a depreciated Rupee. The currency instability is at tensions globally and domestically (on currency front and the firefighting thereafter) and partly due to an improvement in sentiment. The latter might actually be self fulfilling unless we witness a negative shock of some sort. Especially the conducive global economic climate might play significant role in buoying investor sentiment if not necessarily economic growth. least reduced for now, thus eliminating the need for any firefighting response from RBI and its attendant costs. “Advisory services are provided through Karvy Capital having SEBI Registration No: INP000001512. Investments are subject to market risks. Please read the disclaimer on slide 22” 3

Economic Update - Snapshot of Key Markets As on 31st Dec 2013 Change over last month Change over last year BSE Sensex Equity Markets S & P BSE Sensex S&P 500 165 155 145 135 125 115 105 95 85 75 21171 1.8% 9.0% S&P Nifty 6304 2.1% 6.8% S&P 500 1848 2.4% 29.6% 9.3000 4.0% 56.7% 8.3000 CNX Nifty Nikkei 225 Nikkei 225 16291 8.8000 10 yr Gsec 7.8000 7.3000 6.8000 10-yr G-Sec Yield 77 bps Call Markets 8.73% 327 bps NA 9.00% 0 bps 50 bps RICI Index Commodity Markets 10 bps Fixed Deposit* Debt Markets 8.82% 3534 1.6% (4.5%) Gold (`/10gm) 29075 (4.7%) (4.5%) Crude Oil ($/bbl) 111.65 0.5% 0.8% Rupee/Dollar 61.90 0.8% (11.5%) Yen/Dollar 105.33 (2.8%) (18.5%) (As on 26th December) Forex Markets 34000 33000 32000 31000 30000 29000 28000 27000 26000 25000 24000 70 68 66 64 62 60 58 56 54 52 50 Gold `/$ 4 • Indicates SBI one-year FD •New 10 Year benchmark paper(8.15%, 2022 Maturity) was listed in the month of June , the 1 year yield is compared to the earlier benchmark(2021 Maturity)

Economy Update - Global • The U.S. central bank would reduce its monthly $85 billion bond buying program by $10 billion starting in January. US • The Commerce Department said housing starts jumped 22.7%, the biggest increase since January 1990, to a seasonally adjusted annual rate of 1.09 million units. • December's service sector PMI rose to 56.0 from 55.9. • Irish government bonds are close to marking their second year as the euro zone's top-performing debt, giving a 11.7% year-to-date returns. Europe • Britain's services PMI fell to a still very strong 60.0, its fifth highest reading since December 2006. • Austria's 2013 budget envisioned a nominal 2.3% deficit, due to higher-than-expected tax revenue and one-off income from a mobile frequency auction. • Japan’s 10-year yield was up 2 basis points at 0.71%, its highest level since 18th Sept 2013. Japan • Japan's output of rolled copper product rose to 67,751 tonnes in November on a seasonally adjusted basis, up 9.6% from a year earlier. • Japan's general budget deficit is estimated at 9.5% of GDP in calendar 2013, among the worst in the developed world. Emerging economies • India’s forex reserves rose by $4.4 bn to $295.7 bn the highest level since April due to foreign institutional inflows into the equity markets. • India's industrial production contracted for the first time in four months with a 1.8% slump in October. • Annual consumer inflation in China unexpectedly slowed to 3% in November from an eight-month high of 3.2%. 5

Economy Outlook - Domestic 10.0% IIP 8.0% 6.0% 4.0% 2.0% 0.0% • Q2FY14 GDP growth improved to 4.8% YoY as compared to 4.4% in the previous quarter leading to growth of 4.6% in first half of this fiscal. Strong agriculture sector growth and meager improvement in industrial sector aided in pushing the growth in the economy in the second quarter. While growth in services sector continued to slow down. • GDP at Market Price which had trended below GDP at Factor Cost for five consecutive quarters rose above FC at 5.7% as subsidies dropped in second quarter as compared to previous year. -2.0% -4.0% Oct Nov Dec Jan Feb Mar Apr May Jun 12 12 12 13 13 13 13 13 13 Jul Aug Sep Oct 13 13 13 13 • Oct’13 IIP declined by 1.8% YoY, compared to 2.0% and 8.4% growth in Sept’13 & Oct’12, respectively. Unexpected positive performance in capital goods sector mainly led to the divergence between our estimate and the provisional figure. Continued slowdown was witnessed in Consumer Durables sector which contributed significantly to the sluggish growth. • The cumulative growth of the industrial production for the AprilOctober period year-on-year was at a standstill from a growth of about 1.2 percent in the corresponding period of last fiscal. • Agriculture growth rose to 4.6 per cent during July-September from 2.7 per cent in April-June; the growth for the first half of 2013-14 for the farm sector, according to the data released, is 3.6 per cent. The agriculture growth achieved in the first half of 201314 is just about the long term average. • Contribution of Services sector to overall GDP growth in Q2FY14 slowed down further to 76.5% of the GDP. Growth slowed down sharply to 5.9% YoY from peak growth of 10.9% in Mar’11. 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 6.9 GDP growth 6.1 5.3 5.5 5.3 4.5 4.8 4.4 4.8 • The headline figure for Jul’13 IIP has been revised downwards by 17 bps to 2.6% YoY on back of 1.1% decline in basic metals. 6

Economic Outlook - Domestic 20.0% Growth in credit & deposits of SCBs Bank Credit Aggregate Deposits 18.0% 16.0% 14.0% 12.0% 10.0% 8.0%  As on Nov 2013 Bank credits grew by 14.2% on a Y-o-Y basis which is about 2.8% lower than the growth witnessed in Nov 2012. Aggregate deposits on a Y-o-Y basis grew at 16.1%, viz-a viz a growth of 12.8% in Nov 2012.  On 18th Dec, RBI adopted a wait and watch approach and retained its key operative rates; RBI maintained Repo rate at 7.75% consequently Reserve Repo rate stands at 6.75% and MSF stands at 8.75%. Policy document clearly focused on cooling off of Inflationary expectations in Dec’13. RBI is expecting food inflation especially vegetable prices both at retail level and wholesale level to come off from the current peak. However, even with the prices of food & beverages crashing sharply, WPI would still remain above 6.0% and CPI would stay above 9.0% which is above RBI’s comfort zone. * End of period figures  Headline WPI spiked unexpectedly to 7.52% YoY in Nov’13, visà-vis reading of 7.00% in Oct’13. The prices have risen across the segments in the month, while food inflation in particular contributed significantly to the headline figure.  Due to expected revision in Electricity index for Sep’13, WPI for that month has been revised upwards sharply by 56 bps to 7.05% YoY. The average WPI for Apr-Nov’13 is higher at 6.12% YoY as compared to 7.60% in the year-ago period. Core Inflation although remained low at 2.63% YoY in Nov’13 is slightly higher as compared to 2.58% in Oct’13.  Headline CPI spiked to 11.24% YoY in Nov’13, sharpest increase in the entire series, as compared to 10.17% in Oct’13. The gap between CPI and WPI inflation has narrowed down to 3.72% from the peak of 4.74% in Mar’13 mainly due to sharp rise in WPI Inflation.  While on MoM basis, CPI index expanded by 138bps. Nearly 65.00% of the increase in general price level was contributed by Food Inflation, which continued to remain elevated at 14.45%. 8.00% 7.50% 7.00% 6.50% 6.00% 5.50% 5.00% 4.50% 4.00% Wholesale Price Index 7

Equity Outlook: 2014: A new beginning! The past year turned out to be quite constructive for Indian equity. Markets made fresh life time highs on the back of improving domestic macros, supportive global equity and expected governance improvement in India after next general elections. Sensex crossed the level of 21,200 after a gap of almost six years. FII reaffirmed their commitment towards Indian equities with more than 20 billion dollars invested in 2013. BSE SENSEX 22000 20000 18000 16000 14000 12000 10000 31-Oct-13 31-Jul-13 30-Apr-13 31-Jan-13 31-Oct-12 31-Jul-12 30-Apr-12 31-Jan-12 31-Oct-11 31-Jul-11 30-Apr-11 31-Jan-11 31-Oct-10 31-Jul-10 30-Apr-10 31-Jan-10 31-Oct-09 31-Jul-09 30-Apr-09 31-Jan-09 31-Oct-08 31-Jul-08 30-Apr-08 31-Jan-08 31-Oct-07 31-Jul-07 30-Apr-07 31-Jan-07 8000 We see 2014 bringing a new bull cycle into existence. A good monsoon, strong export sector, continued recovery in US & a stable Euro area are significant positives for equity markets. With domestic macro-economic data also on the mend, we are aggressive buyers of Indian equity. We have a year end sensex target of 24,800. 8

Elections are good for Indian Equity! Indian equity markets have tended to move up going into the general elections. The average return of Nifty in the six month period going into the general elections has been 17.6% in the post liberalization era. 1 Month 3 Months 40.0% 6 Months 36.0% 28.9% 30.0% 30.6% 22.8% 17.6% 20.0% 11.4% 10.0% 2.7% 13.7% 12.0% 9.0% 4.5%5.9% 8.7% 3.2% 9.0% 8.5% 2.8% 0.2% 0.0% 20-Jun-91 -10.0% 12-May-96 3-Mar-98 -6.3% 6-Oct-99 13-May-04 16-May-09 Average -8.6% -10.2% -20.0% The recent opinion polls indicate support building up for Gujarat Chief Minister Narendra Modi led National Democratic Alliance (NDA). There have been several concerns about governance and populist schemes in the last few years and markets are getting excited about prospects of a better government emerging from the next election. We would expect a bigger rally building up going into the election. 9

Global Macro Outlook Global growth outlook remains supportive of equity. In their recent meeting, US Federal Reserve has started the tapering of their bond buying program as unemployment rates have hit a five year low. US GDP growth rate in last quarter was an impressive 4.1% underscoring a strong macroeconomic recovery. The tough measures to ensure financial discipline in the peripheral eurozone area in the last few years have began to show results. European economies have seen rebound in growth with several countries coming out of recession. We expect this macroeconomic recovery in the Euro area to get stronger in the next few quarters. Japan is showing clear signs of coming out of a five year deflationary trend. GDP growth has been strong with yen weakness benefitting the exporters. Fresh monetary stimulus and labour reforms will make the recovery stronger. The strong growth momentum will help sustain an upwards bias in developed and Emerging market equities. The revival in global risk appetite has resulted in fresh FII inflows into emerging market equities with India turning out to be a big beneficiary. India has been one of the top performing equity markets since the middle of September with fresh equity inflows of 8 billion dollars. 10

Monetary Policy RBI Governor surprised the market by keeping repo rate unchanged against the consensus expectations of a 25bps increase in repo rate in the recent policy statement. Despite the inflation data for last month delivering a negative surprise, RBI has decided to hold rates at current levels. Governor believes and we agree that the recent spike in inflation has been caused by food and vegetable prices which is expected to reverse in the coming months. Considering the fragile economic environment, any further increase in interest rates can derail the nascent economic recovery . The emphasis on core CPI as an inflation metric as compared to WPI is expected to continue. We expects CPI to average around 8-9% level for next year months thus ruling out any monetary easing in the first half. However, core CPI should moderate to 7% which is within the tolerance limit of RBI. We expect, at most, a 25bps rate hike in first half of 2014 with rates remaining largely stable till the time inflation starts cooling off. The second half of the year should see interest rates coming off which would be beneficial to interest rate sensitive sectors like banking, real estate and infrastructure. 11

Macroeconomic Forecast GDP growth in the last two quarters has remained below 5%. The forecast for FY14 GDP growth has been cut from 5.5% to 5% by RBI. We believe that growth in the next two quarters will improve due to strengthening export growth and expected pick-up in agriculture. Revival of large stalled projects cleared by the Cabinet Committee on Investments will give a boost to capital formation activity. There are several large projects like Delhi Mumbai Industrial corridor which are progressing well. Approvals have also been given recently to several large Oil & Gas and power projects. This would help the Capex cycle in the country which can accelerate the growth rate. We would expect a GDP growth of 6% in FY15 and believe that economy will see a revival of growth and earnings cycle. The agriculture and services sector continue to show strong traction and gradually even manufacturing sector should pick-up as consumer demand revives. A real GDP growth of 6% along with Inflation of around 7% should lead to a nominal GDP growth of 13% leading to earnings growth of around 13-16%. 12

Sensex Target Corporate earnings growth has started to recover since the last quarter. Sensex earnings growth has improved from 5% in FY13 to about 10% in FY14 on the back of INR depreciation. For FY15, we would expect a Sensex EPS growth around of 15%. We arrive at a year end sensex target of 24,800 based on 16 times FY15 earnings. This gives a 18% upside from the current market levels. While Sensex has made fresh life time highs, the performance of various sectors have been quite divergent. Pharma, IT and Auto have been best performers in the last six years, while Banking, Oil & Gas, Capital Goods and Metals have been worst performers. We expect this trend to start to reverse going forward. With interest rates not expected to increase a lot, we have turned positive on interest rate sensitive sectors like banks and automobiles. Public sector banks are trading at quite cheap valuations and we expect significant outperformance from that space in the next two to three years. We expect export oriented sectors like IT to continue to benefit from the significant rupee depreciation seen this year. Telecom is another sector which might deliver strong earnings due to return of pricing power & reduction in competitive intensity. 13

Sector View Sector Stance Remarks Overweight We believe in the large sized opportunity presented by Pharma sector in India. India’s strength in generics is difficult to replicate due to quality and quantity of available skilled manpower. With the developed world keen to cut healthcare costs, and a vast pipeline of drugs going off-patent, Indian pharma players are at the cusp of rapid growth. Overweight The measures taken to stabilize the rupee have largely been reversed and we expect RBI to pause in the short term. We expect public sector to significantly outperform due to cheap valuations and stabilization in asset quality Telecom Overweight The regulatory hurdles and competitive pressures seem to be reducing. Incumbents have started to increase tariffs slowly and pricing power is returning. We believe that consolidation will happen sooner than expected. IT/ITES Overweight Demand seems to be coming back in US. North American volume growth has also remained resilient. With significant rupee depreciation in the last few months, margins will get a boost. Power Utilities Neutral We like the regulated return charteristic of this space. This space provides steady growth in earnings and decent return on capital. Healthcare BFSI 14

Sector View Sector Stance Remarks Automobiles Neutral We are positive on SUV’s and agricultural vehicles segment due to lesser competition and higher pricing power. FMCG Neutral We like the secular consumption theme. We prefer “discretionary consumption” beneficiaries such as Cigarettes, IT hardware, durables and branded garments, as the growth in this segment will be disproportionately higher vis-à-vis the increase in disposable incomes. E&C Underweight The significant slowdown in order inflow activity combined with lack of demand has hurt the sector. It will take some time before capex activity revives Energy Underweight With the ongoing price deregulation of diesel, we believe the total subsidy burden on Oil PSU’s will come down during the course of the year. However, rupee depreciation will reverse most of those gains. Metals Underweight Steel companies will benefit because of rupee depreciation. However, commodity demand stays demand globally due to low capex activity Cement Underweight Cement industry is facing over capacity issues and lacklustre demand. With regulator taking a strong view against pricing discipline, the profits of the sector are expected to stay muted. 15

Debt Outlook 9.60 Yield curve 9.3000 10-yr G-sec yield 9.40 9.20 8.8000 9.00 (%) 8.60 7.8000 8.40 7.3000 8.20 8.00 6.8000 0.0 0.8 1.5 2.3 3.0 3.8 4.5 5.3 6.0 6.8 7.5 8.2 9.0 9.7 10.5 11.2 12.0 12.7 13.5 14.2 15.0 15.7 16.5 17.2 18.0 18.7 19.5 (%) 8.3000 8.80 • The 10 yr g-sec closed the month at 8.82% which is 10 bps higher than the last month’s close of 8.72%. • This year saw substantial volatility in the Indian bond markets. First, a large foreign institutional investor (FII)-buying triggered rally in April followed by an equally swift FII sell-off and outflow on the back of US Federal Reserve Governor's comments on tapering in May. This had a dramatic effect on not only bond yields which moved from a low of 7.11 per cent to 7.99 per cent in these two months, but also on the currency. • This volatility was followed by another round of sharp interest rate movements as the Reserve Bank of India (RBI) put up a strong interest rate defence of the currency and raised the operative rate in the system from 7.25 per cent to 10.25 per cent. Bond prices plummeted and yields went up by 1.7 per cent even as the rupee depreciated by 15 per cent to 68.8 against the dollar. • G-sec yields saw a lot of movement during the month on account of overall bearish sentiment and policy makers’ statement. The volumes in G-sec markets were also lack-luster with most investors preferring to stay away from the market. RBI governor’s comment that the present status quo does not mean a pause in tightening of interest rates affected the market sentiments. 16

Debt Strategy Category Outlook Details Short Tenure Debt With the last 25 bps repo rate hike and influence of domestic and global factors in the market, some uncertainty is coupled with the interest rate scenario in the coming quarters, hence, we would suggest to invest in and hold on to current investments in short term debt. Due to liquidity pressures increasing in the market as RBI has a huge borrowing plan, short term yields would remain higher. Short Term funds still have high YTMs (9.5%–10%) providing interesting investment opportunities. Credit Some AA and select A rated securities are very attractive at the current yields. A similar trend can be seen in the Fixed Deposits also. Tight liquidity in the system has also contributed to widening of the spreads making entry at current levels attractive. Long Tenure Debt Our recommendations regarding long term debt is neither buy nor sell for now. And after the volatility settles Investors could look to add to dynamic and medium to long term income funds over the next few months. Long term debt is likely to see capital appreciation owing to the expected monetary easing. There is lesser probability of rate cuts in the near future and there could be a lot of volatility in the g-sec yields as well. An important point to note is that as commodity prices are cooling down, current account deficit may reduce to some extent. But all this is coupled with uncertainty. We suggest matching risk appetite and investment horizon to fund selection. Hence we recommend that if investing for a period of 2 years or above then long term can be looked upon or else holding/profit booking could be a good idea. Investors who may want to stay invested for the medium term (exiting when prices appreciate) and those who would want to lock in high yields for the longer term can also invest in longer tenure papers/Funds. 17

Forex Rupee movement vis-à-vis other currencies (M-o-M) 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% -0.50% -1.00% 3.39% 20 15 10 5 0 -5 -10 -15 -20 Trade balance and export-import data Export(%) Import 0 Trade Balance (mn $) -5000 -10000 -15000 -20000 -25000 0.80% 0.05% -0.45% USD GBP EURO YEN • The rupee ended with gains on 31st Dec, but posted a 11% fall in 2013, ending a tough year marked by a descent to a record low and suffering from continued concerns about its outlook next year. • The Rupee appreciated against all major currencies except Euro in the month of December 2013. It depreciated by 0.45% against the Euro whereas saw an appreciation of 0.8% against the US Dollar, 0.5% against the Great Britain Pound. Also, we witnessed a huge movement in the Rupee against the Japanese Yen where it finished the month by appreciating by 3.39%. • A narrowing current account deficit has allowed the rupee to withstand the start of reduced bond purchases by the Federal Reserve. The Finance Minister has said that he expects the CAD to be lower at $50 billion for the current FY. The CAD was at $88 billion last year and an improvement in the CAD figures should be good for the Indian currency. Exports during November, 2013 were valued at US $ 24.67bn which was 5.86% higher than the level of US $ 23.25 bn during November, 2012. Imports during November,2013 were valued at US $ 33.83 Bn representing a negative growth of 16.37% over the level of imports valued at US $ 40.45 Bn in November 2012 translating into a trade deficit of $9.22 Bn. 140000 FY14(Q2) 90000 40000 -10000 FY 11 (Q2) FY 11 (Q3) FY 11 (Q4) FY 12 (Q1) FY 12 (Q2) FY 12 (Q3) FY 12 (Q4) FY 13 (Q1) • The projected capital account balance for Q3 FY 13 is projected at Rs. 171984 crores along with the Q1 and Q2 being at 88013 Cr and 130409 Cr respectively. • We expect factors such as higher interest rates to attract more investments to India. Increased limits for investment by FIIs would also help in bringing in more funds though uncertainty in the global markets could prove to be a dampener. 18

Commodities After 12 years in succession of a rising gold price, 2013 ended as an unforgettable year for the yellow metal. The investment case for gold largely depends on whether the global central banks achieve a successful exit from the easy monetary policy. If successful, then bears have a party, if not, 2013 sell off is a massive buying opportunity. Precious Metals Some argue that gold price is discounting the falling inflation in the US, paving way for higher real rates - the current US 10-year bond yield offers a real rate of 1.7%. This argument is flawed as rising real rates is a reason to buy gold, not sell it. After pumping in trillions of dollar into system, the Fed has not yet achieved its inflation target and any sign of deflation would ring alarm bells, encouraging them to inject further more trillion dollars into the system. And, if at all there is a rise in inflation, it won’t stop at a targeted 2.5% given the massive liquidity infusion over these years. And, if history is of any guide, it is hard to believe that there will be any successful exit from quantitative easing. 34000 33000 32000 Gold 31000 30000 29000 28000 27000 26000 25000 24000 We thus favors a structurally bullish view on gold. With a nonstop rise in Dow Jones Index, clearly American equities are over heated and in euphoric phase. Short Equities, Long Gold could be the theme for this year. 125 Crude 120 Oil & Gas The WTI crude dropped to the lowest level in four months as US stockpiles increased and a dollar strength further capping any potential upside. The crude output by OPEC increased to an average 30.621 million barrels and with no fresh triggers to keep oil prices boiling amid ample supplies and increasing inventories, crude oil prices are likely to be stay weaker. 115 110 105 100 95 90 19

Real Estate Outlook Asset Classes Residential Tier I Tier II Due to a flurry of new launches in the first quarter of the year, most markets witnessed an increase in the unsold inventory levels even with relatively steady sales. Consequently, last quarter saw lesser new Demand in Tier II cities is largely driven by the trend towards nuclear families, increasing disposable launches. income, rising aspiration to own quality products and With reduced new launches and steady absorption, the demand supply the growth in infrastructure facilities in these cities. Price appreciation is more concentrated to specific gap is expected to reduce over the coming months. micro-markets in these cities. Cities like Chandigarh, Mid-income residential segment with Rs. 4,000 – 6,000 per sq. ft. Jaipur, Lucknow, Ahmedabad, Bhopal, Nagpur, Patna entry pricing with good developers in Pune, Bangalore, NCR and and Cochin are expected to perform well. Mumbai suburbs cane be expected to continue generating good percentage returns with relatively lower risk. The over-supply in commercial asset class still continues, thereby dampening the capital values. Commercial/IT While rentals have been seen increasing at a slow pace over the last couple of months, they still remain lower than the peal values achieved in the past. In relative terms, Bangalore market continues to outperform other markets owing primarily to the demand from the IT industry. Lease rentals as well as capital values continue to be stable at their current levels in the commercial asset class. Low unit sizes have played an important role in maintaining the absorption levels in these markets. Specific pre-leased properties with good tenant profile and larger lockin periods continue to be good investment opportunities over a longterm horizon. Please Note: Tier I* markets include Mumbai, Delhi & NCR, Bangalore, Pune, Chennai, Hyderabad and Kolkatta Tier II* markets includes all state capitals other than the Tier I markets 20

Real Estate Outlook Asset Classes Tier I Tier II Retail Capital values as well as lease rentals continue to be stagnant. The effects of the change in FDI policy to allow 51% foreign ownership in multi-brand retail and 100% in single-brand retail are yet to have any effect of the market for retails assets. Developers continue to defer the construction costs as absorption continues to be low unsold inventory levels high. Land Agricultural / non-agricultural lands with connectivity to Tier I cities and in proximity to upcoming industrial and other Land in Tier II and III cities along upcoming / established growth infrastructure developments present good investment corridors have seen good percentage appreciation due to low opportunities. Caution should however be exercised due to the investment base in such areas. complexities typically involved in land investments. Tier II cities see a preference of hi-street retail as compared to mall space in Tier I cities. While not much data on these rentals gets reported, these are expected to have been stagnant. The mall culture has repeatedly failed in the past n the Tier-2 cities. Whether the FDI in retail can change this phenomenon can be known with more certainty once the effect of FDI is more visible in Tier I cities. Please Note: Tier I* markets include Mumbai, Delhi & NCR, Bangalore, Pune, Chennai, Hyderabad and Kolkatta Tier II* markets includes all state capitals other than the Tier I markets 21

Disclaimer The information and views presented here are prepared by Karvy Capital Ltd. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. The investments discussed or recommended here may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned here, investors may please note that neither Karvy Capital Ltd nor any person connected with any associated companies of Karvy Capital Ltd accepts any liability arising from the use of this information and views mentioned here. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Karvy Capital Ltd, its affiliates, directors, its proprietary trading and investment businesses (hereinafter referred to as Karvy) may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above-mentioned assets from time to time. Every employee of Karvy and its associated companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd and Karvy Comtrade Ltd. Any information given in this document on tax are for guidance only, and should not be construed as tax advice. Investors are advised to consult their respective tax advisers to understand the specific tax incidence applicable to them. We also expect significant changes in the tax laws once the new Direct Tax Code is in force – this could change the applicability and incidence of tax on equity investments. Karvy Capital Ltd Operates from within India and is subject to Indian regulations. Mumbai office Address: 702, Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra (East), off Bandra Kurla Complex, Mumbai 400 051 22

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