HDFC F Plan

Equities & Private Banking
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Private Banking Group
INVESTMENT PLAN FOR MR TRIDIP ROY
Section A - Investment Requirements
Section B – Recommended Asset Allocation and

rationale
Section C - A Case for Equities and Our View
Section D - Specific Recommendations
Section E - Summary
Disclaimer:
We wish to state that HDFC Bank or its representatives do not undertake any responsibility for the performance of your
portfolio or any other risks attached to it. You should make an independent assessment on the appropriateness of the
investments in view of your own objectives and circumstances. The advice given by the bank is based on the specific risk
profile of the customer. The bank reserves the right to take contrary positions with regard to its own portfolio or that of any
customer as it may deem fit and will not be liable for any such action.
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Section A – Investment Requirements
Profile of the client – Mr. Tridip Roy wants a plan for

investment for 120 Lac. after evaluating the various
investment alternatives.
Investment Risk Profile – As per the client he is not risk averse

and understands the vagaries of the markets.
Current Wealth / Investment Surplus -
We are looking at constructing a portfolio for him which will be

invested from Resident Saving account into Mutual Funds, Direct Equity
/ PMS and other instruments.
Current Asset Allocation -
There are currently other significant holdings; however client has

indicated that he is not risk averse. Has a 5 year plus Investment
horizon and is ready to take reasonable exposure to Equities.
Investment Objectives – as per the client
1. To generate superior returns in a range of 15%- 20%., thereby

negating inflation and adding to real wealth creation over 5 years
+ horizon.
2. The purpose of investments is to create substantial wealth. The

objective is to capture the India Story in the portfolio.
3. To have an aggressive risk profile with regard to the portfolio

restructuring since the Investments horizon of three years.
Disclaimer:
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Section B – Recommended Asset Allocation and

Rationale
Our assessment of your objectives and asset allocation
1. The target returns are achievable with the right asset allocation.
2. We require diversifying into different Asset Management Companies
and into funds with different investment philosophies and mitigate
the risk of fund manager.
3. We recommend mutual funds as a transparent, liquid, high yielding,
professionally managed and tax efficient avenue that will enable
you to achieve desired growth in your wealth and at the same time
give you control over asset allocation in rapidly changing market
dynamics. Also MF vis-a-vis Direct equity would give you a much
larger representation of the market. We recommend portfolio of MF
rather than equity.
Asset Allocation Strategy Recommended:
Return Matrix – Moderate Profile

Investment Category Expected % Exposure % Amount in
Vehicle Annual Recommen Weighted cr.
Post Tax ded Return (Rs.)
Returns %
Disclaimer:
-4-
Equity Mutual Equity 20% 60% 12 0.72 Cr.

Funds+
Balanced Mutual Equity + 15% 20% 3 0.24 Cr.
Funds Debt
Debt Funds Debt 10% 20% 2 0.24 Cr.
Total 100 17 1.2 Cr.
Overall Asset Allocation

Debt 30
Equity 70
Note: It is assumed that Equity allocation in Balanced Fund is 65%.
Rationale for a 90% equity allocation –
1. Equity markets will yield returns in line with corporate earnings.

The equity markets going forward will not produce 40%- 60%
returns as shown in the last two years since markets are no longer
grossly undervalued as they were in FY2003 and FY2004. In case of
re-rating of the PE’s we expect vertical growth from Equities.
2. We have a long-term investment horizon and therefore, equity
exposure can be significant. However we would still keep an upper
cap of 60% to the class of equities, as the Indian Stock markets are
dependent on FIIs who are very sensitive to the geo-political factors
as witnessed in the past.
3. 40% debt exposure would actually give tactical opportunity like 11
Sept ‘02 and 17 May ‘04 which eventually gives more returns
without taking increased risk. Also there is requirements for New
Ventures.
4. Equity Investments are tax efficient (please see table below) -
Nature of Return Equity Funds / Shares

Short Term Capital 10% + 10% Surcharge + 2% Cess
Gains Effective Rate – 11.22%
Long Term Capital NIL
Gains
Dividends NIL, (Dividend Distribution Tax
charged)
Establishing an appropriate asset mix is a dynamic process, and it

plays a key role in determining your portfolio's overall risk and return.
Disclaimer:
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There are a few different strategies of establishing asset allocations,

and here we outline some of them and examine their basic
Management approaches.
Strategic Asset Allocation

strategic asset allocation is a method that establishes and adheres to
what is a 'base policy mix'. This is a proportional combination of assets
based on expected rates of return for each asset class. For example, if
equity is expected to give a return of 15% per year and debt is 6% per
year, a mix of 50% equity and 50% debt would be expected to return
10.5% per year.
Constant Weight-age Asset Allocation
Strategic asset allocation generally implies a buy-and-hold strategy,

even as the shift in the values of assets cause a drift from the initially
established policy mix. For this reason, you may choose to adopt a
constant-weighting approach to asset allocation. With this approach,
you continually rebalance your portfolio. For example, if one asset were
declining in value, you would purchase more of that asset, and if that
asset value should increase, you would sell it.
There are no hard-and-fast rules for the timing of portfolio rebalancing

under strategic or constant-weighting asset allocation. However, a
common rule of thumb is that the portfolio should be rebalanced to its
original mix when any given asset class moves more than 5% from its
original value.
Tactical Asset Allocation

Over the long run, a strategic asset allocation strategy may seem
relatively rigid. Therefore, you may find it necessary to occasionally
engage in short-term, tactical deviations from the mix in order to
capitalize on unusual or exceptional investment opportunities. This
flexibility allows you to participate in economic conditions that are
more favorable for one asset class than for others.
Tactical asset allocation can be described as a moderately active

strategy, since the overall strategic asset mix is returned to when
desired short-term profits are achieved. This strategy demands some
discipline, as you must first be able to recognize when short-term
opportunities have run their course, and then rebalance the portfolio to
the long-term asset position.
Disclaimer:
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Currently we have recommended the strategic asset allocation. This

would be rebalanced from time to time based on the returns generated
from each asset class. A portion of the portfolio will be used as and
when opportunity comes for the Tactical allocation.
Section C – A Case for Equities and Our View
The Indian Equity Markets
The Indian economy is performing extremely well and the Indian GDP is
expected to grow by over 7.5% in the current year. Besides the do-
mestic growth opportunities there are excellent avenues for growth,
which are emerging in the outsourcing areas. Currently the market cap-
italization of the Indian markets stands at Rs 18,00,00,000 Cr. against
a GDP of Rs 31,00,00,000 Cr. Over the next one year the Indian GDP
will grow at a nominal level of around 13% taking the GDP to Rs
35,00,00,000 Cr. At that GDP the market capitalization /GDP ratio in In-
dia will come down to nearly 50%. In our view this should be at a level
of more like 60% and increase further with time. This gives a potential
upside of nearly 15% to the markets over the next 12-15 months. Giv-
en the secular growth phase that Indian economy is passing through, it
is easier to estimate that after five years, assuming a normal profit
growth rate of 15% p.a. and reasonable PE’s, Sensex should be any-
where between 12000 (at 11 PE) to 16000 (at 15 PE).
The equity markets over long periods of time are slaves of earnings
and of growth in earnings. In fact over long periods of time returns
from equities must track corporate profit growth rates for very simple
reasons:
a) If markets continue to lag profit growth rates, the P/E’s will keep on
falling and ultimately start-approaching zero, which is not reasonable.
b) On the other hand, if equity returns continue to outpace profit

growth rates, P/E’s will keep on rising and move towards very high
levels and ultimately start approaching infinity which is again not
reasonable.
On the other hand, equities over short periods are simply volatile!
Disclaimer:
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Therefore, one can say with a higher degree of confidence what is

likely to happen to equities over the next 5 years than one can say
what is likely to happen over the short periods
The medium to long-term outlook of the markets
There are two components to assessing the future prospects of the

markets viz.
a) Outlook for economic and corporate profit growth rates and
b) The PE multiples of the markets
Lets look at these one by one.
Outlook for profit growth rates

The long-term sustainable profit growth rates of Indian corporate on
an average are nearly equal to the growth rates of manufacturing and
service sectors plus inflation. Assuming around 8% real growth rates of
service and manufacturing sectors and 4-8% inflation, the nominal
growth rates work out to 12-16% p.a.
However, over the last 3-5 years, profits have grown at higher growth
rates of nearly 25% CAGR. Significant cost savings drove this mainly in
the manufacturing sector, significant de-leveraging and lower interest
rates resulting in a sharp fall in interest expenses, nearly flat
depreciation expenses as capital spending was minimal in the last 5
years (after significant capacity creation in mid and late 90’s) and a
cyclical upturn in commodity prices notably steel, aluminum and oil as
also a sharp rise in volumes of commercial vehicles, etc.
Looking forward over the next 2-5 years the expectations of growth
rates range between 12-18% CAGR. These are lower than past growth
rates because the incremental cost savings are relatively small, capital
spending is coming back as new capacity needs to be created which
will result in a gradual but steady rise in fixed charges, interest rates
have bottomed out and there are cost pressures from higher prices of
basic materials as also wage inflation. Finally, an appreciating currency
is also not good for margins on balance. A cyclical downturn in
commodity prices cannot be ruled out as well.
In view of the above, over a 3-year period, profits should therefore

grow by nearly 50% and should nearly double over the next 5 years (at
15% CAGR).
Disclaimer:
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This slowdown in profit growth rates is widely anticipated and is built

into analysts’ forecasts and is therefore not a cause for concern.
However, we must take into consideration the expectation of slowdown
in profit growth rates in the future while assessing the prospects of the
markets.
Outlook for PE multiples
There is nothing like a “fair” PE multiple (if there was one, then shares
would not fluctuate because historic earnings in any case are known;
even 1 year forward earnings are known with reasonable accuracy).
However, it is possible to take a view on PE multiples whether they are
cheap or expensive. Let us look at the different ways to assess PE
multiples:
a) History is a guide (even though not always a reliable one). The

average PE of Indian markets over last 15 years is around 18 and for
long periods our markets have traded between 15-25 multiples. The
present PE is nearly 16 times based on March 2006 estimated
earnings. Thus at present level of index, the PE’s are not unreasonable.
b) According to a thumb rule used by the financial community, a PE

nearly equal to sustainable earning growth rate is considered
reasonable.
Considering the fact that earnings growth in foreseeable future is
around 15%, a 15 PE is not unreasonable for the markets.
c) Our PE’s are also in line (actually somewhat higher) with the PE’s of
the region. However, there is a case to be made that Indian PE
multiples should actually be higher than PE’s of the region. This is
because of higher sustainable economic growth rate of our economy,
on account of size and diversified nature of our economy, on account
of low leverage in the economy and finally very low dependence on
exports, etc. Thus, even from this perspective the PE’s are not
unreasonable.
d) There is yet another way of looking at PE multiples. A 7% yield on

10-yr G- Sec translates to a nearly 14 PE for a risk free asset with zero
growth. Crudely assuming that the growth offsets the volatility of
growth rates in equities, a 15 PE is very close to a bond PE and again is
therefore, reasonable.
Disclaimer:
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In view of the above, in our opinion, it is reasonable to conclude, that

the present PE multiples of our markets though are not cheap as they
were in the last 2-3 years, but they are neither unreasonable or
expensive.
There is also an issue of frame of reference here. For those of us who

are comparing the PE’s of the last 2-3 years, the present PE’s appear to
be high but if we were to compare the same with the last 10 years
PE’s, then present PE’s appear to be reasonable.
Prospects of markets
Economic growth rates (particularly for industry and services) and

profit growth rates in India are quite stable and there do not appear to
be many significant risks to the same. The uncertainty about PE
multiples is however more. An 11-16 PE band on a 1-year forward basis
is fairly reasonable band for the markets to trade in without the
markets being materially under-valued or over-valued. Assuming
different PE multiples for the markets 1 year, 3 years and 5 years from
today and assuming 15% CAGR in profits, it is fairly easy to work out
the prospects for the index. This is summarized in the table below.
Projected March March March

Sensex '06 '08 '10
@ 11 PE 6513 8684 11476
@ 14 PE 8296 11010 14577
@ 15 PE 8917 11786 15585
@ 16 PE 9537 12561 16392
@ 18 PE 10728 14130 18450
The above tables appear to have an upward bias for the Sensex even
at lower PE multiples. This is so because, earnings are expected to
grow in a growing economy and over time, the growth offsets fall in PE
multiples even if there is one. In fact, as the time horizon becomes
Disclaimer:
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longer, impact of growth will completely outshine the impact of PE

multiples on returns. This is in fact the good thing about equities in a
growth environment, and this also reduces the risk of equities over
time (the big assumption only being that growth sustains).
Conclusion and suggested investment strategy for these

markets
The markets are thus presently neither under-valued nor over-valued.

Returns are likely to track the earnings growth rates over the medium
to long term. Moreover as highlighted earlier, there is always
uncertainty about timing of the returns.
In view of the above,
a) There is a need to have moderate return expectations from

markets for the future. Returns of the last 3 years are unlikely to be
sustained.
b) As PE’s are reasonable and will come down only over time as
profits grow, there is a need to increase the time horizon of equity
investments.
Three years or longer is a reasonable time frame in my opinion.
c) As the PE’s are reasonable and there are always risks linked to
events either locally or internationally, equity investors should be
prepared
for volatility, particularly over shorter time frames.
d) The risks to earnings are not as much across the board and are
more sectoral in nature e.g.
a cyclical downturn in commodities is negative for commodity

stocks
a sharp hardening of interest rates is more negative for smaller
sized companies, capital spending etc
an appreciating currency is negative for exporters (including IT
companies) along with commodities, etc.
In such an environment, effective diversification is of greater value.

Diversified funds (as opposed to sector / thematic funds) thus carry
lower risk.
Disclaimer:
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In summary, what is being said above is that investors must assess

what is that portion of their wealth which is not required for 3 years or
more and on which one can tolerate volatility both financially and
emotionally. This is the right proportion of one’s wealth to be invested
in equities. Finally, there is merit in equity investments even today
because equities are likely to yield higher returns than most other
asset classes even though the gap in future returns may be less
compared to the past.
We can use the following strategies to enter the

market:
1. Invest into Equity Funds through SIPs/ STPs: This can be done on a
weekly basis over 2-3 months. It will give the benefit of 'Rupee-Cost
averaging’; where are cost for the full investment would be average
cost of all the entries done over the period.
2. Balanced Fund, which dynamically manages the Asset Allocation:

Asset allocation is the key to a sound portfolio especially during volatile
times. Recently, we did a study on portfolio rebalancing and based on
this study our research desk recommends taking exposure to a
balanced fund like HDFC Prudence Fund.
3. New Fund Offerings: The other strategy could be to invest in new

fund offering, which has flexibility to invest the cash into the stocks
within a period of 3 months. This helps the fund manager to utilize a
correction and pick stocks at lows.
In the stock markets different segments of the market be it mid caps or

large caps will move up and down in cycles.
As such, we do not believe that investors should be unduly concerned

about the correction in the mid cap segment which has been
happening over the last few days and may last a few days more. Such
corrections are part of the market and are very healthy for the market
because if stocks go up continuously without correcting the markets
tend to become dangerous. As they create artificial bubble.
Large caps that were significant under performers for months have
now started to perform. This is very positive for the overall stock
markets as most of the money of a large number of investors (be it
domestic or institutional) lies in large cap stocks. This will create lot of
Disclaimer:
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liquidity in the system, which will be positive for the long run
performance of the stock markets.
Corporate sector performance is expected to continue to be strong

even in the current financial year, which will give support to the
valuations in the markets. However, we may not see universal
movement in Industries and stock selection would be key.
We believe that the growth in the economy will be lead

primarily by three themes.
Domestic Consumption
We believe that the demographic profile of the country is shifting

towards youth - specifically those born in 1980s & 90s, they would be
those people who have just started working or would start in near
future, single or just married with high disposable incomes and with a
high lifestyle aspiration. Due to this shift, consumption of high value
products such as Air Conditioners, washing machines, computers, cars,
mobile telephones, etc., is expected to increase. All this translates into
a surge in demand for products of companies that are catering to this
segment of our population. Since this is happening on the back of
attitudinal changes and lifestyles aspirations, it's likely to be
sustainable.
Infrastructure
India has witnessed high economic growth in last few years but lack of
quality infrastructure is acting as a speed breaker for sustaining the
same. For instance, the fund states that in India there are 710 phone
connections per 10,000 people as compared to 4,238 in China and
11,643 in US. Further 264,000 aircraft take-off in India, as compared
946,000 in China and 77,89,000 in the US. But with both Central and
State governments running into deficits, private participation is
actively encouraged. Some of the steps that the government has taken
so far to woo investors in the infrastructure sector include:
• Increase in FDI in road, port, telecom, aviation and other

infrastructure sectors.
• Establishment of independent regulators like TRAI, Electricity
Regulation Commissions.
• Dedicated funding for infrastructure spending like fuel cess for road
construction and education cess for education.
Disclaimer:
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• Abolishment of license requirements for power generation.

• Considering the above steps, the future of infrastructure sector
looks bright. Some of the indicators are as follows:
• In the Power sector, the government aims to add 1,00,000 MW of
generation capacity by 2012
• Greater private and public sector participation is expected to take
place in the telecom sector.
• Various oil pipeline projects are slated to materialize.
Service
Some of the reasons why the Services industries sector is an attractive

sector.
These are as below:
• Services have been growing at a faster rate than Industry and
Agriculture in India and in other large developed countries. In 2005,
the Services sector is expected to contribute around 50% of India’s
GDP share.
• Infrastructure spending is on the rise. The government has taken
various steps like public-private participation, building adequate
regulatory framework and encourages foreign investors. This, itself,
is favorable for support services offered by the Services sector.
• Services growth rides on India’s globally competitive advantage due
to a large pool of low cost and trained workforce.
The Services sector is well diversified and comprises of many different

sub sectors such as Auto components, Banking and Financial Services,
Construction, Healthcare services, Tourism, Media and Entertainment,
Trade and Retail, IT and IT enabled services, Telecom, Transportation,
etc.
Equity exposure in the markets today can be taken through:

1. Direct Equity
2. Equity Mutual Funds
3. Equity Unit Linked Insurance/Pension Plans.
Disclaimer:
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DEBT MUTUAL FUNDS
Overall the yield in the bond markets remained volatile ahead of the monetary policy. The
RBI announced the monetary policy on Oct 25th. The RBI hiked the Repo and reverse
repo rates by 25bps. However the bank rates were left unchanged. The yield of the
benchmark 10-yr security touched a high of 7.18% on expectation of hike in reverse repo
rate but fell after the RBI announced the monetary policy. We recommend investors to
invest into short term income funds while investors having an investment horizon of
less than 3 months can consider Liquid Fund and Floating Rate Fund Short term
plan. In view of the above scenario we advise to consider allocation between Fixed
Maturity Plan and Liquid Fund. If Liquidity is not a issue than ULIP Plans could
also be considered.
Fixed Maturity Plan (FMP’s) - Fixed Maturity Plans invests in instrument whose
maturity is in line with duration of the plan, and hence FMP eliminates interest rate
risk as investment is held to maturity. FMP is a short-term debt fund with fixed date
of Maturity. Current Yield is around 8%.
DEBT ALLOCATION
Category Allocation Amount in Cr.

Liquid Plan/ 10% 0.12
Arbitage Fund 10% 0.12
Among the Floating Rate we would recommend you to invest in the following ones.
1. DSP ML Liquidity Fund

2. HDFC Cash Management Fund
PAST PERFORMANCE
Disclaimer:
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Fund Name 1 Months 3 Months 6 Months

DSP ML 6.2% 5.85% 5.8%
Liquidity Plan
HDFC Cash 6.1% 5.9% 5.76%

Management
Fund
Section E – Specific Recommendations
We recommend the following plan, 0.50Cr in Equity & 0.20 Cr. in

Balanced Funds based on the current theme of the Indian Equity
Markets.
We have categorized the following Industries in the three broad themes
as given below. We have found the % exposure of the funds that we
have recommended in these three themes to be substantial & hence
they are capable of capturing the value unlocking in the given three
themes.
Consumerism Telecom, Textiles, Personal Care, Food, Consumer Durables, Auto

Services Banking & Finance, Computer Hardware & Software, Hotels
Infrastructure Transport, Steel, Shipping, Power, Paints, Housing, Engg, Cement
The following Four (5) funds would capture the growth stories
in the respective segments over the next 3-5 years. We have
also given the % exposure of these funds in the above three
themes.
Sr. No. Name of the Fund/ Scheme Amount in Rs. Type % Allocation
1 Reliance Vision Fund 1500000 Equity 49.50%

2 Sundaram Select Midcap 1500000 Equity 43.70%
3 HDFC Equity Fund 1500000 Equity 60.30%
4 Reliance Growth Fund 1500000 Equity 40 %
Disclaimer:
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5 Prudential ICICI Dynamic 1200000 Equity 44.20%

7200000
Balanced Mutual Fund
HDFC Prudence Fund:
HDFC Prudence Fund is one of the best-balanced funds. The fund invests around 60-
65% in equities and the rest in debt and money market instruments. The fund has
returned around 58% in the past year, as against its benchmark return of 28%. The
fund follows a portfolio rebalancing strategy of booking profits on its equity
investments on a regular basis, thereby reducing the risk level and sticking to its
asset allocation. Under equities, the fund invests in a mix of large and mid cap
stocks. Under debt, the fund follows a passive investment strategy.
Sr. No. Name of the Fund/ Scheme Amount in Rs. Type

1 HDFC Prudence Fund 2400000 Balanced
We also believe that the portfolio must have a structured risk policy which
suits the profile. Our suggestion on the risk policy on the portfolio would be
:
1. Risk Monitoring of the portfolio is very essential in the equity allocation. We

believe a stop loss could be decided on mutually and can be exercised in a
declining market.
2. Although, we believe that there should be risk monitoring in the form of a stop
loss for the equity portfolio (in accordance to the risk appetite), we feel that it can
be reviewed by the investment committee if the stop loss is hit due to
unexpected events like the Intra-year rise in inflation, Deficient Monsoon fall,
Volatility in Oil Prices & Political instability. Thus in our risk policy we separate the
risk due to a wrong investment decision which must be rectified and the risk due
to an event which may just be short term impact rather than a long term effect
3. Tracking of existing investments vis-a-vis the benchmark should be done on a

regular basis for the mutual funds
4. We recommend review of the portfolio once every three months for any
rebalancing that is needed through a detailed review of portfolio balancing needs,
the market view and the tactical allocation at that point of time.
5. We also believe that return expectation on portfolio must be defined and

expectations reviewed when profit objectives are met. Thus we recommend some
sort of book profit levels in line with your return expectations (adjusted for the
Disclaimer:
- 17 -
market outlook). These return expectations must be aligned to the market trend.
Future cash flows would be integrated into the portfolio and rebalancing
done whenever these flows are seen.
Section F - Summary
1. Restructuring the portfolio, with more diversification among the

AMC and the funds with different investment objectives.
2. Equity, Debt and Balanced Mutual Funds.
3. The asset allocation is 70% to equities and rest to debt.

4. Tax efficiency and administrative simplicity have been kept in mind.
5. The approach is one of long term investing (60 months and above).
6. Periodic profit booking and asset rebalancing will be recommended.
Thanks and Regards,
Samrat Bose
Disclaimer:
- 18 -
HDFC Bank Private Banking

No 9 Eterna, HDFC Bank
Kormangla ,
Bangalore - 560095
Phone - +91 9341947849
Disclaimer:

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Equities & Private Banking

Private Banking Group

INVESTMENT PLAN FOR MR TRIDIP ROY

Section A - Investment Requirements

Section B – Recommended Asset Allocation and

Section C - A Case for Equities and Our View

Section D - Specific Recommendations

Section A – Investment Requirements

Profile of the client – Mr. Tridip Roy wants a plan for

Investment Risk Profile – As per the client he is not risk averse

Current Wealth / Investment Surplus -

We are looking at constructing a portfolio for him which will be

Current Asset Allocation -

There are currently other significant holdings; however client has

Investment Objectives – as per the client

1. To generate superior returns in a range of 15%- 20%., thereby

2. The purpose of investments is to create substantial wealth. The

3. To have an aggressive risk profile with regard to the portfolio

Section B – Recommended Asset Allocation and

Our assessment of your objectives and asset allocation

Asset Allocation Strategy Recommended:

Return Matrix – Moderate Profile

Equity Mutual Equity 20% 60% 12 0.72 Cr.

Overall Asset Allocation

Rationale for a 90% equity allocation –

1. Equity markets will yield returns in line with corporate earnings.

4. Equity Investments are tax efficient (please see table below) -

Nature of Return Equity Funds / Shares

Establishing an appropriate asset mix is a dynamic process, and it

There are a few different strategies of establishing asset allocations,

Strategic Asset Allocation

Constant Weight-age Asset Allocation

Strategic asset allocation generally implies a buy-and-hold strategy,

There are no hard-and-fast rules for the timing of portfolio rebalancing

Tactical Asset Allocation

Tactical asset allocation can be described as a moderately active

Currently we have recommended the strategic asset allocation. This

Section C – A Case for Equities and Our View

The Indian Equity Markets

b) On the other hand, if equity returns continue to outpace profit

Therefore, one can say with a higher degree of confidence what is

The medium to long-term outlook of the markets

There are two components to assessing the future prospects of the

Lets look at these one by one.

Outlook for profit growth rates

In view of the above, over a 3-year period, profits should therefore

This slowdown in profit growth rates is widely anticipated and is built

Outlook for PE multiples

a) History is a guide (even though not always a reliable one). The

b) According to a thumb rule used by the financial community, a PE

d) There is yet another way of looking at PE multiples. A 7% yield on

In view of the above, in our opinion, it is reasonable to conclude, that

There is also an issue of frame of reference here. For those of us who

Economic growth rates (particularly for industry and services) and

Projected March March March

longer, impact of growth will completely outshine the impact of PE

Conclusion and suggested investment strategy for these

The markets are thus presently neither under-valued nor over-valued.

In view of the above,

a) There is a need to have moderate return expectations from

a cyclical downturn in commodities is negative for commodity

In such an environment, effective diversification is of greater value.

In summary, what is being said above is that investors must assess

We can use the following strategies to enter the