Strictly Private and Confidential

Indian Economy
Growth in times of Gravity..

Dec-08

Paradigm Advisors
Setting Exemplary Standards

Strictly Private and Confidential

Index
The Backdrop: Roaring Asian Tiger Global Meltdown: Changing Fortunes? Driven by Domestic Consumption GDP and Industrial Growth will sustain Underlying fundamentals remain strong Liquidity and Inflation to Ease Indian Real Estate Sector About Paradigm Advisors 3 4 5 6 7 8 9 10

Strictly Private and Confidential

The Backdrop: Roaring Asian Tiger

Indian Economy Posted Strong Growth One of the fastest growing economies in the world Growth mainly driven by: Services exports backed by cost arbitrage Heavy investment in infrastructure Trickle down effect boosting manufacturing Consumption led demand across all major segments Commodity boom benefiting majority of corporate sector Private Sector Investments increased on the back of: Strong demand Ample liquidity Easing inflation and benign interest rate regime FII and FDI inflows Booming domestic and global capital markets Strong business confidence Strong appetite for Indian paper
Source: CSO
100% 90% 80% 70% 60% 50% 40% 30% 31% 30% 30% 29% 27% 28% 27% 27% 25% 24% 23% 21% 21% 20% 18% 20% 2006 20% 10% 0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 -

Figure: Robust Annual GDP Growth

10% 9% 8% 7% 6% 5.6% 5% 4% 3% 2% 1% 0%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Sharp increase in GDP growth since 2004

8.5% 7.8% 7.3% 7.3% 5.9% 5.1% 6.5% 6.1% 4.8% 5.8%

9.4% 9.0%

7.5%

4.4% 3.8%

1.3%

Source: CSO

Figure: Driven by Manufacturing and Services

2002

2003

2004

Share of Agriculture

Share of Others

Value Added

2005

Strictly Private and Confidential

Global Meltdown: Changing Fortunes?

Sudden Global Events Hit India India is as much hit by series of global events Sub-Prime meltdown reducing capital inflows in the country Rising commodity prices exerting inflationary pressure Rising crude prices and import bill widening trade deficit Tightening liquidity and rising inflation led to hardening of interest rates Liquidity had to be further reduced to curb demand pull inflation Tight liquidity resulted in slowing down of growth Redemption pressure and withdrawal of capital
(USD mn)
Source: Bloomberg

Figure: Rising Inflation and Interest Rate

14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar00 01 02 03 04 05 06 07 08 WPI Inflation (LHS) SBI PLR (RHS) 14% 13% 12% 11% 10%

Figure: FIIs Pull Out of Indian Markets

6,000 4,000 2,000 0 (2,000) (4,000) (6,000) Jan-06 Jan-07 Apr-05 Apr-06 Apr-07 Jan-08 Apr-08 Jul-05 Jul-06 Jul-07 Oct-05 Oct-06 Oct-07 Jul-08

resulted in further weakening of markets Fear of global economic slowdown could hurt Indian industry Total FII holdings since Jan 00 costing around US$ 40 bn is now valued at US$ 93 bn FII holdings currently constitute around 22% of the total market cap of the Indian Markets

Source: SEBI

Strictly Private and Confidential

Driven by Domestic Consumption

Fear is more a perception than reality Indian economy is not greatly dependent upon exports and developments in global markets Indian economy is greatly driven by domestic consumption Institutional framework and health of banking and financial system continues to remain robust Government has undertaken series of measures to infuse liquidity to drive growth, which would show results in 6 8 months FDI inflows continue to remain strong
Figure: Aggregate FDI Inflows 30,000
25,000 20,000 15,000 10,000 5,000 FY2006 FY2007 FY2008 FY2008 FY2009 Full Year (USD Mn) Annual Growth (%)
Source: DIPP

Figure: GDPs Dependence on Exports

Japan India France UK Indonesia Russia Germany C hina South Africa Singapore Malaysia 10
Source: Bloomberg

Exports to GDP (%)

30

50

(%)

70

90

110

130

Figure: Domestic Consumption as a %age of GDP

200% 150% 100% 50% 0% Apr - Jul (USD Mn) 4 Month Growth (%)
Source: Bloomberg

Exports 15%

Domestic Consumption 85%

Strictly Private and Confidential

GDP and Industrial Growth will sustain

Growth to sustain, despite slowdown Indian economy would continue to face pressures on the back of:
GDP (INR Bn.)

Figure: GDP growth may slowdown from 9.4% to 7.6%

Agriculture & Allied Services 40,000 30,000 20,000 10,000 0 2002 2003 2004 2005 2006 2007 2008 2009E Y ear
Source: CSO

Industry Real GDP Growth (RHS) 12% 10% 8% 6% 4% 2% 0% % Growth

Impact on financial sector and investments Softening commodity prices Impact of global slowdown on exports Exercise undertaken by government t curb liquidity to control inflation However, with infusion of liquidity coupled with dominant dependence on domestic consumption would drive growth We expect to witness GDP growth of around 7.6% in FY2009 Industrial growth would pick up on the back of infusion of liquidity and improvement in sentiment We expect industrial growth to be at least 5% and may be as high as 7% in FY2009 and may further improve to a higher number in FY2010. Indian economy continues to remain strong on the back of its predominant dependence on domestic consumption.

Figure: Industrial growth will sustain

350 300 250 200 150 100 50 0 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07 Apr-08 Aug-08 Base 1993 - 1994 = 100

Source: CSO

Strictly Private and Confidential

Underlying fundamentals remain strong

Figure: Above average agri production reduces pressures
100 80
(USD mn)

Figure: Trade deficit widens and invisibles inflow rises

32,000 24,000 16,000 8,000 (8,000)

(MT )

60 40 20 0 T otal C oars e c ereals P uls es O ils eeds C otton R ic e J ute

(16,000) (24,000) (32,000) (40,000) Q1FY05 Q2FY05 Q3FY05 Q4FY05 Q1FY06 Q2FY06 Q3FY06 Q4FY06 Q1FY07 Q2FY07 Q3FY07 Q4FY07 Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q1FY09

N orm a l

F Y09
Source: RBI

Trade balance

Invisibles net

Current acco unt balance

Source: CSO

Figure: Savings and investment rates continue to be high

40%
35% 32% 35%

Figure: Burgeoning Forex Reserves are reassuring

335
Fo rex reserves

35%
32% 30% 28% 31%

34%

290 (USD bn) 245 200 155 Dec-07 Jun-07 Apr-07 Apr-08 Feb-08 Jun-08 Aug-07

30%

25%

2004

2005 Investment

2006 Savings

2007

Source: CSO

Source: RBI

Aug-08

Oct-07

20%

Strictly Private and Confidential

Liquidity and Inflation to Ease

Figure: Infusion of Liquidity
9.0

Figure: CRR, Repo Rate and SLR Cuts

29.0

1,200 900 600 (INR bn) 300 (300) (600) (900) May-08 May-08 Sep-08 Sep-08 Sep-08 Aug-08 Aug-08 Apr-08 Apr-08 Apr-08 Jul-08 Jul-08 Oct-08 Jun-08 Jun-08

9 8 7 6 5 4
5.0 16-Apr 1-Apr 8.0

160 128
(%)
Suppo rt ing liquidity crunch

28.0 27.0 26.0 25.0 24.0 23.0 13-Sep 16-May (%)

(%)

7.0

96 tightening o n acco unt o f sharp rise in inflatio n A ggressive 64 32

31-May 28-Sep 14-Aug 29-Aug 13-Oct 15-Jun 30-Jun 15-Jul 1-May 30-Jul

6.0

(USD/bl)

0 Jan-07

May-07

Jan-08

May-08

Mar-07

Sep-07

Mar-08

Net absorpt ion

Net inject ion

Reverse repo rat e

Repo rat e

Repo Rate

Cash Reserve Cr ratio ude

SLR-RHS

Source: RBI

Source: RBI

Central Bank has cut repo rate, CRR and SLR to infuse liquidity in the system
Figure: Falling Crude Price 160
128 (USD/bl) 96 64 32 0 Jan-07 May-07 Jan-08 May-08 Mar-07 Sep-07 Mar-08 Sep-08 Nov-07 Jul-07 Jul-08

Figure: Easing Inflation

14% 12% 10% 8% 6% 4% 2% 0% Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Oct-08

Cr ude

Source: Bloomberg

Source: RBI

Easing inflation may trigger a bank rate cut once Rupee stabilizes

Sep-08

Nov-07

Jul-07

Jul-08

Strictly Private and Confidential

About Paradigm Advisors

Founded by Sumeet Mehta in Oct 2008 Sumeet Mehta is a Chartered Accountant by qualification and brings with him 8 years of experience in industry and equity research and investment banking Covered sectors like metals and minerals, engineering and constructions, infrastructure and real estate, power, logistics, to name a few Experience in thematic research, sectoral (top down) research, and mid caps (bottom up) research Experience in initiating coverage in newer sectors where there is no organized research available Strong in numerical and financial modeling skills and writing and analytical skills

Strictly Private and Confidential

Industry and Equity Research Process

Top Down Approach:

Analyzing general macro trends and its impact on the sector Detailed sectoral analysis, including demand estimation, supply analysis, pricing trends, and forecasting outlook Identifying listed and unlisted companies for investment opportunities, including analyzing risk and concerns and valuations Indentifying undervalued stocks and then comparing it with the peers Industry analysis and evaluation of standing of the company Financial analysis and valuations and comparison with the peers Detailed study of the sector, including market size and segmentation trends, demand drivers and estimation, demand, supply and pricing trends, raw material sourcing, international scenario, key competitive strengths, key players and market share trends, and outlook

Bottom - Up Approach:

Detailed Sectoral Research:

10

Strictly Private and Confidential

Contacts Sumeet Mehta

Chief Executive Officer Paradigm Advisors 1-2, Laxmi Bldg, Sir P. M. Road, Fort, Mumbai, 400 001 Email: sumeetnmehta@yahoo.com Phone: +91 98704 38983

11