Advice for The Wise March 2014

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Information about Advice for The Wise March 2014

Published on March 6, 2014

Author: KarvyPrivateWealth


ADVICE for the WISE Newsletter –MARCH 2014 1

Contents Index Page No. Economic Update 4 Equity Outlook 8 Debt Outlook 14 Forex 16 Commodities 17 Real Estate 18 2

From the Desk of CIO Dear Investors, The global investment climate became moderately positive in A ‎ gainst the backdrop of deteriorating macro scenario, the February. In particular the outlook on India improved quarterly results of the companies surprised positively. It considerably. This was less to do with the improvement in remains to be seen if this is the beginning of a long awaited Indian macro fundamentals and more to do with the turnaround or a short term reaction to productivity deterioration of those of other emerging markets. Risks of improvement measures undertaken by most companies. investing in India, for a change, it seems, we're lesser of all evils! Going into March, the pre-election rally in equities might build on the back of expectations of a pro-reforms The budget was presented in the parliament with very little government after the elections. However, it is likely to be to react to. Presented by a government which is increasingly highly prone to the results of the elections. Any significant getting certain about not returning to power, the budget did changes to asset allocation hence should ideally await the very little other than reduce excise duties for cars. The fiscal same. deficit for the year seems partially 'managed'‎ with financial jugglery. The target for next year seems overambitious. But considering the likely change of guard at the centre, this target has limited relevance. “Advisory services are provided through Karvy Capital having SEBI Registration No: INP000001512. Investments are subject to market risks. Please read the disclaimer on slide 18” 3

Economic Update - Snapshot of Key Markets 25th As on Feb 2014 Change over last year BSE Sensex Equity Markets Change over last month 20852 (1.3%) 7.9% S&P Nifty 6200 (1.1%) 1845 3.1% 24.0% S & P BSE Sensex CNX Nifty 5.9% S&P 500 165 155 145 135 125 115 105 95 85 75 10 yr Gsec 9.3000 8.8000 Nikkei 225 15051 (2.2%) 29.1% 8.3000 7.8000 7.3000 6.8000 10-yr G-Sec Yield 109 bps Call Markets 7.89% (131 bps) 4 bps 9.00% 0 bps 50 bps RICI Index Commodity Markets 19 bps Fixed Deposit* Debt Markets 8.89% 3679 4.8% (1.0%) Gold (`/10gm) 30538 2.8% 4.0% Crude Oil ($/bbl) (As on 24th February) 34000 33000 32000 31000 30000 29000 28000 27000 26000 25000 24000 70 68 Gold `/$ 66 109.76 0.6% (4.2%) 64 62 60 58 56 54 Forex Markets Rupee/Dollar 61.97 0.32% (12.80%) Yen/Dollar 102.43 0.4% (8.8%) 52 50 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 US • U.S. manufacturing activity slowed sharply in January on the back of the biggest drop in new orders in 33 years. • The U.S. unemployment rate fell to 6.6%, its lowest level in last 5 years . • The U.S. economy is expected to grow at a rate of 2.8% for all of 2014 versus a previous estimate of 2.6%. Europe • Greece's primary budget surplus which has come in at over 1.5 billion euros ($2.1 billion), has exceeded expectations and will allow the government to boost social spending on austerity-hit citizens. • The 9.5 trillion euro economy contracted 0.4% overall in 2013. • France Markit’s Purchasing Managers Index fell in February to 47.6 from 48.9 in January drifting further away from the 50 point threshold. Japan • Japan’s GDP data showed that private consumption grew weaker than expected 0.5% in the fourth quarter of last year. • Japanese companies increased their spending on plant & equipment by 4% in Oct-Dec quarter on back of gradual pick up in business and earnings. • Japan's public pension’s fund- the world’s largest saw assets rise to record $1.26 trillion. Emerging economies • IMF projects India’s FY 14 GDP growth @ 4.6%. • India’s IIP shrank 0.6% in December,it’s third contraction in a row. • China’s Flash Markit/HSBC Purchasing Manager’s Index fell to a seventh month low of 48.3 in February from January’s reading of 49.5. 5

Economy Outlook - Domestic 3.0% 2.0% • Q3FY14 GDP growth slowed down to 4.7% YoY as against expectations of 4.8% YoY & as compared to 4.8% in the previous quarter leading to Apr-Dec’13 growth of 4.6%. Strong growth in Services sector contributed significantly to the growth in the economy in the third quarter. While manufacturing growth slumped by 1.9% in Q3FY14 . IIP 1.0% 0.0% -1.0% -2.0% • Agriculture sector in Nominal term has recorded a growth of 18.5% YoY while in real terms it has grown by 3.6%. Record high production in food grains in FY14 is likely to reflect in Agriculture sector’s growth in the next quarter. -3.0% -4.0% Dec Jan Feb Mar Apr May Jun 12 13 13 13 13 13 13 Jul Aug Sep Oct Nov Dec 13 13 13 13 13 13 • Sharp cut down in government planned expenditure in order to achieve the fiscal deficit target is likely to further hamper the investment activity as well as slow down community & social services spending. This is also likely to show its effect on growth in the next year. • Dec’13 IIP decelerated by 0.6%, consecutive third month of contraction, as compared to 1.3% decline in Nov’13 and 1.6% de‐growth in Oct’13. Contraction is mainly led by continued slack in • Nearly 90% of the GDP growth contribution was due to surge in Services sector performance. Services sector growth sharply augmented to 5 month high of 7.6% YoY as compared to 6.0% in the previous quarter & 6.9% in corresponding quarter in last year. Consumer Durables production. • Consumption activity as well as investment activity slumped further in Q3FY14 as compared to the previous quarter. 6.5 Manufacturing, mining activity as well as electricity generation 6.0 weakened further in this quarter. 5.5 6.1 • Headline figure for Nov’13 is revised upwards by 74bps to (1.3)% YoY while Sep’13 is also revised upwards by 73bps primarily driven by upward revision in Basic metals index. 5.0 4.5 5.3 5.5 GDP growth 5.3 4.8 4.5 4.8 4.7 4.4 4.0 FY12(Q3) FY12(Q4) FY13(Q1) FY13(Q2) FY13(Q3) FY13(Q4) FY14(Q1) FY14(Q2) FY13(Q3) 6

Economic Outlook - Domestic Growth in credit & deposits of SCBs Bank Credit 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% Aggregate Deposits  Sharp correction in food prices led to downtrend in inflation as the WPI touched 5.05% YoY in Jan’14 after slowing down to 6.16% in Dec’13. WPI Index has been corrected by 143bps in last two months primarily driven by sharp plunge in vegetables price index by 51.9%.  There has been no revision in headline WPI for Nov’13; however, the prices of petrochemical building blocks and gold were revised upwards by 6.14% and 3.61%, respectively. The average WPI for Apr‐Jan’14 remains elevated at 6.04% YoY, compared to 7.54% in the year‐ago period. Core inflation edged up for month in a row to 3.04% YoY in Jan’14, compared to 2.75% in Dec’13. * End of period figures 12.00% 10.00% CPI 8.00% 6.00% WPI Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 May-13 Apr-13 4.00% Mar-13  On 17th Feb, Finance Minister presented the interim budget – sans the big bang announcements either on social or infrastructure framework of the economy. The only positive that came was in the form of excise duty cut for capital goods & consumer durables sector from 12% to 10% , from 12% to 8% for auto sector and for SUV’s from 30% to 24%. In short, the budget did nothing to improve the investment cycle in the economy or to increase consumer spending, given the fact that elections are round the corner this was the best that the Finance Minister could do.  Headline CPI dropped to two year low of 8.79% YoY in Jan’14 as compared to 9.87% in Dec’13 and 11.16% in Nov’13Rural CPI remained higher than Urban Inflation as it slowed down to 9.43% YoY as compared to 8.09% at urban level. Core inflation CPI slightly increased to 8.11% YoY from 8.09% in Dec’13 and 7.97% in Nov’13. Feb-13  As on Jan 2014 Bank credits grew by 14.7% on a Y-o-Y basis which is about 1.4% lower than the growth witnessed in Jan 2013. Aggregate deposits on a Y-o-Y basis grew at 15.7%, viz-a viz a growth of 13.2% in Jan 2013. 7

Equity Outlook Elections play a big role in determining the political economy of a Nation. India is eagerly awaiting the Lok sabha elections expected to take place in April-May this yea. These elections are being observed very keenly by the equity market participants. 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. Indian equity markets have tended to move up going into the general elections in the post liberalization era. The average return in the three and six month period going into the general elections has been 8.5% &17.6% respectively in the last six general elections. We expect this time to be no different and would expect a bigger rally building up going into the election. Recently, GDP growth forecast for FY14 has been announced by the CSO. It shows that GDP growth this year is likely to be around 4.9%, showing no significant upturn over last year’s disappointingly low number of 4.5%. India has been growing far below its potential for last three years demonstrating that there are significant stresses in the underlying economy. The new government will have to put economic growth revival at the top of the agenda and take proactive steps to revive the economy. Here are the five key things we expect the new government to undertake to revive growth: 8

Equity Outlook A New Manufacturing Policy India is sitting on a demographic time bomb. More than 25 crore people are expected to enter the workforce in the next 10 years. This means on an average, 2.5 crore new jobs need to be created every year to absorb these people into the workforce. The new jobs that are being created in the country are low-productivity jobs in the unorganized sector, offering low incomes, little protection or benefits. Services jobs are relatively high productivity, but services alone can’t provide jobs to such a large number of people. India’s challenge is to create the conditions for faster growth of productive jobs outside of agriculture, especially in organized manufacturing. India’s share of manufacturing as a percentage of GDP is extremely low & there is significant scope to improve this further. It is impossible to provide so many new jobs without increasing the share of manufacturing in the overall GDP. Indian manufacturing has been hit hard by the recent slowdown. Manufacturing sector has continued to show negative growth in the last two years The recent rupee depreciation can make Indian manufacturing competitive globally. With clever resource allocation, India can become a global manufacturing hub in sectors like Automobiles & auto components, pharmaceutical, textiles, gems & jewellery, leather goods, IT hardware & solar power. The SEZ policy was launched with this very intention. However, policy muddle & l& acquisition issues brought this to a complete halt. SEZ policy will need to be revived & several incentives will need to be given to the industry to exp& in these sectors. Land acquisition bill has already been passed by Lok Sabha. Labour laws also need a complete overhaul so that producers are encouraged to hire more employees. Once labour and land issues are streamlines and cheap finance is available to industry, Indian manufacturing will blossom and will lay the foundation of a virtuos cycle of productivity gains, high salaries and high growth. Push for Large Infrastructure Projects • In the last two years, capex cycle almost came to a standstill. The saving investment gap has increased sharply in the last five years. • India will need to reorient the economy from being consumption led to investment led to remove various inefficiencies that plague the Indian economy today. • Good infrastructure goes a long way in increasing economic productivity, creating new employment opportunities and removing supply bottle-necks. Big infrastructure projects need to be provided quick access to capital, speedy environmental and forest clearances and policy support. Several large projects have got stalled in last few years. • Some large infrastructure projects will need to be identified and concerted push will be needed to drive them to completion. Dedicated Freight corridor between Mumbai & Delhi is one such project. Quick execution of such projects will provide massive employment, provide quick transportation for goods, lead to productivity gains and will have large trickle down effects on the adjoining towns and villages leading to revival in consumption demand. Several ‘shovelready’ projects should be provided viability gap funding wherever needed. 9

Equity Outlook Streamlining Government Finances High Current account and fiscal account deficits have caused tremendous strain in the economy. The new government will need to address these issues on a priority basis. As growth slowed and government revenues did not keep pace with spending, the fiscal deficit ballooned to unsustainable levels. The current level of 5% cannot be sustained. The large government borrowing to finance fiscal deficit crowds out private investment and slows down capex cycle. It is important to streamlines various government subsidies to reduce government deficit. Fiscal deficit can be significantly reduced by eliminating fuel subsidies for diesel and LPG, revising urea price and linking food subsidy to aadhar. Ideally, total subsidies should be limited to between 1.5 per cent and 1 per cent of GDP in the years to come from 2.5% currently taking the fiscal deficit to 3% of GDP by FY17. Addressing current account deficit sustainably: With government savings falling and private savings also shrinking, the current account deficit widened in last two years. While CAD for this fiscal is now expected to be below 2.5%, this reduction has been brought by artificial controls on gold imports. Gold demand will come back as soon as these curbs are removed. The underlying factors behind this gold surge need to be addressed. Gold imports have increased dramatically in India as inflation has made real interest rates in the economy negative. This reduced returns on all financial assets and forced people to move into gold to protect their savings Hence, inflation cool-off is necessary for a sustainable control on CAD. Removing supply bottle-necks are must to control consumer price inflation. The new government should take quick actions to repeal APMC act that can lead to cool-off in food inflation. 10

Equity Outlook Restarting the disinvestment programme: Disinvestment programme has come to a standstill since the time UPA come to power. Although there have been minority stake sales, no change in management control of public enterprises has happened in the last 10 years. As a result, several large government entities have become inefficient and sick & have lost out to competitors in the last few years. Public sector companies have massively underperformed their private sector peers on financial parameters in the last five years. The best example is BSNL, once a telecom giant with valuation of 100 billion dollars, is now sick and dependent on government aid to pay its employee salaries. Whereas Maruti Suzuki which was disinvested during NDA time, remains India’s biggest car manufacturer with a 50% market share and remains extremely profitable. Disinvestment can lead to better utilization of national resources, better delivery of goods and services to customers and increased productivity. Despite so many negatives, plaguing the economy, all is not lost. If the new government takes these measures growth can revive. The potential growth rate of economy is running around 6%. The growth rebound to those levels can take place quickly. Once that has been achieved, the more arduous path of reclaiming the 8% growth can start. From a equity market stand-point, macro-economic revival in India will open opportunities to make high double digit returns in the next few years. 11

Sector View Sector Stance Remarks Healthcare 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. 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. Neutral The regulatory hurdles and competitive pressures seem to be reducing. Incumbents have started to increase tariffs slowly and pricing power is returning. However,wireless technologies and social media present a formidable business risk. Telecom BFSI Neutral Power Utilities Neutral Interet rates are expected to stay high for the next few quarters. We expect public sector to significantly outperform due to cheap valuations and stabilization in asset quality We like the regulated return characteristic of this space. This space provides steady growth in earnings and decent return on capital. 12

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. 13

Yield curve 10-yr G-sec yield 9.3000 8.8000 8.3000 (%) 9.40 9.20 9.00 8.80 8.60 8.40 8.20 8.00 7.80 7.60 7.40 7.8000 7.3000 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 (%) Debt Outlook • The yields on 10 Yr G sec rose to 8.94%, highest since Jan 2014. Weakness in Rupee is one of the reasons to push the bond yield higher. During the month the 10 year G sec yields had eased to 8.75% as traders as well as investors trimmed positions post the interim budget announcement. • The government surprised the market as it revised the fiscal deficit target for FY13-14 at 4.6% (better than budgeted 4.8%). In the last week of the month G sec market saw a lot of volatility,where eventually yields ended flat on account of lack of clarity on how the optimistic fiscal deficit target and revenue target will be met in FY 15. • The spread on the 10 year AAA rated corporate bond increased to 76 Bps on 28th Feb,2014 from 69 Bps(as of 31st Jan,2014). • The SDL auction for all eleven states could garner only Rs 7 600 Cr against a schedule to raise Rs 8 500 Cr & cut off yields came higher between 9.68% and 9.85%. 14

Debt Strategy Category Short Tenure Debt Credit Long Tenure Debt Outlook Details With the current 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. 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. 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 15 tenure papers/Funds.

Forex Rupee movement vis-à-vis other currencies (M-o-M) 0.40% 20 15 10 5 0 -5 -10 -15 -20 0.32% 0.20% 0.07% 0.00% -0.06% -0.20% Trade balance and export-import data Export(%) Import 0 Trade Balance (mn $) -5000 -10000 -15000 -20000 -25000 -0.40% -0.60% -0.61% -0.80% USD GBP EURO YEN • The Indian Rupee appreciated against USD & GBP while depreciating against Euro & Yen in the last month. It saw an appreciation of 0.32% against USD,0.07% against GBP and 0.61% depreciation against Japanese Yen. Exports during January, 2014 were valued at US $ 26.75bn which was 3.79% higher than the level of US $ 25.77 bn during January, 2013. Imports duringJanuary,2014 were valued at US $ 36.66 Bn representing a negative growth of 18.07% over the level of imports valued at US $ 444.75 Bn in January 2013 translating into a trade deficit of $9.9 Bn. 140000 Capital Account Balance 120000 100000 80000 • The Indian Rupee strengthened to it’s highest in more than a month boosted by bunched-up dollar inflows & selling by exporters,aided by gains in Euro which improved risk appetite. • Rupee rose 1.5% in the month ,it’s biggest monthly gain since October 2013 after foreign investors bought a net $2.05 bn in debt & stocks in February. However, worries in emerging markets are croping up again after a tumblinh Chinese Yuan cast a shadow in the region , while political tensions in Ukraine also raised concerns. • The exchange rate for Rupee in Feb 2014 averaged 62.25 to USD which is 18 Bps higher than Jan 2014 rate of 62.07. 60000 40000 20000 0 FY 11 (Q4) FY 12 (Q1) FY 12 (Q2) FY 12 (Q3) FY 12 (Q4) FY 13 (Q1) FY 13 (Q2) FY 13 (Q3) • 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. 16

Commodities Precious Metals Oil & Gas Given the sharp sell off last year, the global commodity indices increased their 2014 weightage to the bullions given the attractive risk reward ratio. It seems that gold has moved past the tapering concerns given the macro uncertainties surrounding the world and safe haven is back. The sharp fell off in emerging market currencies and slew of central bankers surprising with rate hikes supports a bullish argument for the metal. The talks of India relaxing the import norms and reducing the custom duty further kept prices elevated in anticipation of demand spike that was largely absent last year. Expect prices to remain. Gold appreciated by 4% in Feb 2014 as compared to last year& closed at Rs.30538 on 25th Feb,2014. WTI crude rose trimming the biggest monthly decline for January since 2010, as demand for distillate fuel countered a second weekly increase in U.S. crude stockpiles. The record US cold keep energy prices firmer as the distillate demand rose 20% to 4.52 million barrels a day, the highest level since February 2008, the EIA said. Cold weather will dominate the central U.S. and Canada through midFebruary that would support higher prices going forward. Expect prices to remain firm. Crude Oil as on 24th Feb,2014 closed at $ 109.76 an appreciation of 0.6% over it’s Jan 2014 closing price. 34000 33000 Gold 32000 31000 30000 29000 28000 27000 26000 25000 24000 120 115 Crude 110 105 100 95 90 17

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 18

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 19

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 20

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