ANSWERS YOU ALWAYS WANTED TO KNOW

The last one-week has probably been a very trying one for all of us. Time and again our patience and faith in the
Indian Equity Markets has been tested. Being an investor however calls for a lot of discipline and rationalism, as
opposed to being a trader who is associated with short term outlook and crowd mentality. It is with this brief
background in mind that I am attempting to answer some of the critical and repeated questions that would have
been raised by your investors.
Q1. You never told us to sell when the markets were at 21,000 levels? Rather you were saying that in long
term one can get 15%-20% returns?
The markets were reasonably overvalued at 21,000 levels. We said the same thing in the "The Fundz Watch"
issues of November, December, January; Equity Markets, Outlook.
When the markets were at 21,000 levels our PE traded in the range of 24-26 and there was some amount of
overvaluation. But this was not a shocking figure because when markets have been in rising times/bull runs they
have also gone up to a PE of 50 in past.
There were also chances of the markets reaching 30,000 and then falling down. Hence, it is always difficult to
give an exit call unless markets are unreasonably valued (like a PE of 45-50). No one can predict the market
and hence following asset allocation methodology (it is the proportion of ones investments of the total portfolio
in a particular asset class) would have enabled one to book profits automatically which we have always been
emphasizing.
Profit booking in equity is not only a function of market valuation but also a function of how much exposure one
has into equity markets. Because it is the exposure of overall portfolio that matters.
More so we never expected a substantial correction because the profit growth projections were looking robust.
We were talking to be cautiously optimistic and invest through SIPs or STPs and rebalance asset allocation
if your substantial portion of money was invested in Equities.
Had you invested through SIPs rather than lump-sum what would have been your position?
The following table will give you an idea of how your downside would have reduced by following the SIP route.
Total Amount Value of Lump Value of
Scheme Name % loss % loss
Invested sum Investment SIP Investment
Birla Sun Life Equity Fund - Gr 100,000 39,411 60.59% 59,813 40.19%
DSPML Top 100 Equity Fund Gr 100,000 50,084 49.92% 67,629 32.37%
Fidelity Equity Fund 100,000 46,404 53.60% 64,080 35.92%
HDFC Equity Fund - Gr. 100,000 46,752 53.25% 64,917 35.08%
HDFC Top 200 - Gr. 100,000 49,977 50.02% 66,152 33.85%
ICICI Prudential Dynamic Plan-Cum 100,000 47,213 52.79% 62,400 37.60%
Kotak 30 Gr 100,000 44,531 55.47% 62,200 37.80%
Reliance Growth Fund Gr 100,000 41,986 58.01% 61,190 38.81%
Reliance Vision Fund Gr 100,000 43,136 56.86% 63,122 36.88%
Average of schemes (53 schemes) 100,000 41,512 58.49% 60,204 39.80%
SIP @ Rs. 10,000 pm. For Jan-2008 to Oct 2008; Lump-sum investment of Rs. 1 Lac is done on Jan 10, 2008

We still continue to believe that the investments made at peak market levels shall deliver at least 10% returns for
a period of 5 years
There is logic behind this; without significant FII participation our markets had returned 17% from 1979 to 2000.
With FIIs having pulled out a significant amount of money and economic growth continuing to grow (may be at
a slightly slower rate from here on) we will still see the markets rising in the long run. This is simply because the
emotions may rule in the short run but in the long run it is the profits alone that will drive the valuations.

India Invest
www.njindiainvest.com
Q2. At 14,000- 15,000 levels you aggressively came to us and said there is a limited downside and you
should start investing; markets are looking very attractive?
The journey of 21,000 to 15,000 was on account of:
- Rise in commodity prices mainly oil price which touched 150 Dollars per barrel
- Rise in commodity prices brought inflationary pressure resulting into slower growth rates
We believed that markets got corrected significantly and rise in commodity prices were mainly due to
speculative positions rather than genuine demand. (Read Fundz Watch Editorial "Boiling Oil", June 2008 edition)
We factored the scenario and in that scenario even the projected growth rates were lowered from 9% to 7%-
7.5% and even such growth rates are very attractive from equity standpoint.
We believed that the market correction was healthy and was consolidating the market for new growth trajectory
(till 14,000 levels).
We expected a downside of 10%-15% from these levels due to factors such commodity prices, inflationary
pressure etc, but not beyond that.
We said that in the next 5 years from 14,000-15,000 levels the markets would likely double i.e. in the range of
30,000-35,000 levels and to invest in staggered manner. We knew the likely destination but not the route the
markets would take.
The journey of 14,000 - 9,000 is answered in the next question.
We still continue to believe that the markets will be around 30,000 - 35,000 levels in the next five years
Q3. Today also you are saying to invest but people say the economy has entered into a medium to long
term recession. We have already lost significant portion of our capital, how do you expect us to
invest now?
The fall from 14,000 to 9,000 has been on account substantial liquidity issues rather than any fundamental
issues.
It started from the announcement of bankruptcy of Lehman Brothers on 15th September at 11.30 hrs IST and
markets were at 13,500.
FIIs pulled out close to Rs 20,361 crores of Equity investments in the month of Sept-Oct. If we see the YTD
2008 figures, FIIs have pulled out Rs. 48,875 crores of Equity Investments. This is one of the reasons for the
sudden fall in the markets. (Data as on October 24, 2008).
The market cap of FIIs at peak was close to 300-400 billion dollars and currently the FIIs have around 50 billion
dollars market cap in the Indian Markets.
Significant downside has come because of distress selling, still some further selling may take place but we
believe that 90% of the selling has already happened.
Projecting market bottom would be difficult but we believe the distress selling to get over within next 10 to 15
days.
Markets are at all time lows with trailing P/E multiples of 10-10.5 times at 810 EPS and at 900 EPS on March'
09 the P/E works out to be around 9 to 9.5.
This is an extraordinary situation and what has happened in US and other global markets does not impact
Indian fundamentals in any big way (can refer the article posted on 23rd October).
The Indian stocks are available extremely cheap. We strongly recommend BUYING INDIA... and average out.

India Invest
www.njindiainvest.com
We are not trying to give any explanation to our 9 Lac customers and 10,000 advisors who have trusted NJ
always and we really feel the pinch much more than probably what you are experiencing because of such a
sudden meltdown and extraordinary situation.
But such a situation was beyond our comprehension and it has taught us many more things. Our
CUSTOMERS' MONEY and wealth is very important to us and our commitment towards working for
customers' wealth creation shall only strengthen in the days to come. During most of the bull runs it is the
FIIs and promoters who make money, but in the next one we will put all our learnings to ensure that all our
customers shall create wealth and make money which is the only endeavor of NJ.
At this hour of time, you would find this rhetoric but TEAM NJ seriously means it.
The losses that are being observed presently are notional and with time we are sure the losses will go out and
gains shall start.
Mutual fund equity schemes have managed to generate decent returns even in such distressed market
condition. Even after current market meltdown, diversified equity schemes have managed to outperform the
benchmark indices by a wide margin. The following table shows the returns generated in the Last five years:
Returns
Particulars
5 years
DSPML Top 100 Equity Fund Gr 23.03
DSPML Equity Fund - Reg. Plan - Div 24.72
HDFC Top 200 - Gr 22.19
Sundaram BNP Paribas Select Focus - Gr 23.10
Sundaram BNP Paribas Select Midcap - Gr 25.85
Reliance Growth Fund - Gr 29.29
Average of Diversified Equity Funds 18.35
BSE 30 12.82
NSE 50 11.30

Small investments by all of us can make a large difference; just think rationally and start because this is a kind
of a once in lifetime opportunity to buy QUALITY BUBUSINESS
SINESS at abnormally low prices.

India Invest
www.njindiainvest.com
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