Monthly Communiqué – Portfolio Management Service
April 2009
Flashback - FY 09
The Sensex fell 38% in FY08-09 from 15,327 to 9,708. In the 240-odd trading days in 2008-09, investors witnessed a wealth destruction of
Rs20.5lakh crore (roughly 40% of India's GDP). For the first time in five years, the BSE Sensex gave negative returns over a financial year - losing
6,000 points or 37.94%.
Huge selling/redemptions were witnessed in markets across the world post the collapse of Lehman Brothers in October 2008. The Indian
markets underperformed as compared to developed markets. Both benchmark indices - the Sensex and the Nifty were down ~37% in FY08-09
but outperformed MSCI BRIC Index, which was down ~44% in local currency terms.
Among the worst performing indices were the BSE Capital Goods Index, the Metals Index, and the Real Estate Index, which fell >50% in FY08-
09. Smaller stocks were the worst hit, with the BSE Mid-cap and the BSE Small-cap indices losing 54% and 59%, respectively. The BSE FMCG
Index outperformed - down just ~11% during the year.
10-year G-Sec yields have fallen by 95bp YoY to 7.01% v/s 7.96% but have hardened by 175bp of late as compared to last quarter, despite steep
fall in inflation to 0.27%. The rise in bond yields will reduce treasury profits and MTM profits for banks.
The rupee depreciated by a sharp 26.5% vis-à-vis the US dollar and closed the year at Rs50.73/US$. Commodities crashed by more than 50%. The
real negatives of futures were seen in the unprecedented rise in oil prices to US$147/barrel and the subsequent crash to US$36/barrel. The fall
in commodity prices is reflected in the drastic fall in inflation from ~8% in March 2008 (at peak, inflation was 12.91% in September 2008) to
0.27%. However, CPI remains at a high of 10%. Gold was the only commodity that continued to shine through the year and closed 4.3% up at
US$921/ounce due to risk aversion (in Rupee terms, the gain was ~29%).
Mutual funds bought equities worth Rs63b during the year. FII's were net sellers to the tune of Rs480b. The most significant part of this selling
came after the collapse of Lehman Brothers.
To address the liquidity crisis arising due to mass exodus of foreign investments, RBI slashed all benchmark rates. CRR and Repo rates were cut
to 5% from a peak of 9%.
Looking ahead
Expected earnings in 4QFY09
Most sectors would report earnings decline or single-digit growth. We expect MOSL Universe (comprising 117 companies) excluding oil
refining & marketing companies (RMCs) to report 1.5% YoY decline in sales, 11.8% YoY decline in EBITDA and 19.3% YoY. RMCs would be
reporting significant profits due to issuance of oil bonds; hence it has been excluded them from the comparison. Most sectors would report
either a decline or single-digit growth in earnings with just 3 out of 16 sectors reporting double-digit earnings growth. The decline in
aggregates would be largely due to sharply lower earnings from Metals and Real Estate. Excluding these two sectors, aggregate earnings would
grow 3% YoY.
PORTFOLIO MANAGEMENT SERVICES
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Monthly Communiqué – Portfolio Management Service
Are we at the end of the earnings downgrade cycle?
Downgrade in Sensex EPS estimates commenced with our 4QFY08 and has continued in the following quarters. Since our 3QFY09 results
review released in February 2009, there is no change in our FY10 Sensex EPS estimate of Rs886. The major changes in assumptions have already
been factored in post 3QFY09 results. This is positive, given that some of the incremental data points have started looking up and these are also
being reflected in our estimates. For FY09, we estimate Sensex EPS at Rs877 v/s Rs840 in our 3QFY09 results review, which implies an upgrade
of 4.4% and translates into a growth of 5.2% over FY08.
Elections 2009: an important but unpredictable milestone for Indian equities
In 1QFY10, the most important event for the markets would be the General Elections scheduled for April-May 2009. The recent history of state
election results in Rajasthan, MP, Chattisgarh, Delhi, J&K, etc and the stance of various regional parties do not provide any pointers to the likely
winner. While the government will be formed through a coalition of multiple political parties (no single party is likely to win a majority on its
own), the dominant party, its allies and their willingness to introduce economic reforms would be a significant catalyst for Indian equities. This
becomes even more important in the current environment of economic slowdown. Market reaction was very adverse to the unexpected
outcome of the elections in May 2004.
Macro indicators: mix of positives and negatives
After an above-average growth of 8-9% since FY03, GDP growth for FY09 is likely to decline to 6.7% on strong global headwinds and rub-off
impact on the Indian economy. The estimated real GDP growth of 6.7% in FY09 is still better than most economies and is led by strong domestic
consumption. Several sectors that had reported significant drop in business momentum in 3QFY09, have witnessed strong recovery in 4QFY09.
Inflation unlikely to rebound in FY10; RBI to continue easing
FY09 has witnessed high inflation of 12.9%, and subsequently, a 30-year low of 0.3% in the latest weekly data. In CY08, the average WoW
change in WPI was 0.156%, much above the preceding 3-year average change of 0.107%. The two key drivers of this inflation were prices of
base metals and oil, which have declined significantly in the last six months. We expect inflation to turn negative for the next six months. A
deflationary environment would be conducive for both the RBI and the government to pursue more measures to stimulate growth.
Valuations below historical averages
As the Sensex declined from 21,000 to below 10,000, all the key valuation parameters fell below the historical averages. The BSE Sensex now
trades at a forward P/E of 11.3x v/s the 15-year median of 13.3x, while the P/B multiple has declined from 4.3x to 1.9x. Following the
deceleration in earnings momentum, Sensex RoE is now estimated at 17% v/s its peak RoE of 24%. At the current levels, earnings yield to bond
yield is 1.3x, close to its all-time peak of 1.4x.
PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670

Value PMS
Strategy Objective
The Strategy aims to deliver superior wealth
creation by way of long term compounding
effect, with investments in good businesses
run by great business managers.
Investment Strategy
• Bottom Up Approach
• Value based Stock Selection Approach
• Margin of safety
• Long-term investment View
Other Details
Portfolio Manager : Mr. Raamdeo Agarwal
Benchmark: S&P CNX Nifty
Investment Horizon: 3+Years
Portfolio Managers Commentary
We increased the weightage of Reliance Industries. Following is the rationale for this:
Reliance Industries has delivered an average RoE of 20% over the last 15 years. It should achieve an EPS of Rs100 in FY09, which we believe
would increase to Rs150-175 in the next two years. The company's earnings could get a serious boost if it gets 100% exemption under Section
80IB of the IT Act. Added to that is the potential upside from undiscovered oil and gas in prospective oil blocks, both of which are in close
proximity to the KG D-6 block, but the value of which cannot be estimated today as the details of reserves are not available. The huge cash flows
expected from KG-D6 would make it a very high free-cash flow company in the coming years.
We expect GRM of US$8/bbl for RIL and US$9/bbl for RPL, commercial production of RPL from April 2009, and commercial production of KG-
D6 gas from April 2009.
Value Performance vs Benchmark
Performance Snapshot
40.00
3 0 .4 9
V alue Strategy
Nif ty
As on 31st March, 2009
30.00
2 1.12
20.00
10.00
0.00
-10.00
-20.00
-30.00
-40.00
1 Month
3 Months 6 Months
-19 .3 6
-2 2 .9 6
-2 9 .9 4
-3 6 .19
-5.2 3
-11.0 6
-1.71
-3 .8 8
9 .3 1
4 .4 1
0 .8 5
2 .0 9
16 .8 8
10 .3 6
11.2 5
18 .70
1 Y ear
2 Y ear
3 Y ear
4 Y ear
5 Y ear
Sinc e
Inception
PMS Inception Date : 18 Feb 2003.
Since
Inception retuns are of the first client.
PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670

Bulls Eye PMS
Strategy Objective
The Strategy aims to deliver returns in the
short to medium term by investing in funda-
mentally sound stocks coupled with active
profit booking.
Investment Strategy
• Aggressive Investment Style and Market
Timing
• Regular Profit Booking
• Ability to take cash calls
Other Details
Portfolio Manager : Mr. Sachin Abhyankar
Benchmark: BSE 200
Investment Horizon: 1Year
Portfolio Managers Commentary
We booked profits in GAIL, Reliance Industries, MphasiS, Hero Honda, GSK Consumer and SBI. We exited REC; it was trading at 1x FY10E book
value as compared to 0.5-0.7x FY10E book value for state-owned banks. We increased our exposure to SBI, BoB and HDFC Bank at lower levels.
We added JSW Steel, BHEL, Infosys, and Piramal Healthcare. We introduced Real Estate stocks into the portfolio. We bought DLF and HDIL, as their
valuations were drastically beaten-down in our opinion.
Bulls Eye PMS vs Benchmark
Performance Snapshot
20.00
10.00
0.00
-10.00
-20.00
-30.00
-40.00
-50.00
1 Month
3 Months
6 Months
-40.98
1 Year
2 Years
3 Years
Since Inception
*
-1.40
-16.37
-26.69
-24.34
-4.69
-14.37
-7.02
-6.88
6.22
9.14
3.86
6.59
Bulls Eye Strategy
BSE 200
As on 31st March, 2009
9.99
PMS Inception Date : 15 Dec. 2003.
PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670

Next Trillion Dollar Opportunity PMS
Strategy Objective
The Strategy aims to deliver superior returns
by investing in focused themes which are
part of the next Trillion Dollar GDP growth
opportunity.
Investment Strategy
• Stocks with High Growth Story
• Stocks with Reasonable Valuation
• Concentration on Emerging Themes
• Buy&Hold Strategy
Other Details
Portfolio Manager : Mr. Sachin Abhyankar
Benchmark: CNX MIDCAP
Investment Horizon: 2 – 3 Years
Portfolio Managers Commentary
We exited REC; it was trading at 1x FY10E book value as compared to 0.5-0.7x FY10E book value for state-owned banks.
We increased our exposure to Mahindra Lifespaces. The stock has crashed more than 90% from its peak, but the business fundamentals remain
strong. Its 3,000-acre Jaipur SEZ is witnessing strong traction, with the inauguration of the Light Engineering and the Handicrafts SEZs, spread
across 250 acres each. It has tied-up with SBI for setting up SBI's North India hub in the DTA part of the Jaipur SEZ, Mahindra World City.
The SEZ includes exclusive zones for IT/ITES companies, light engineering companies including auto and auto component manufacturers,
handicraft companies, gems & jewelry companies, and apparel companies. Besides these exclusive zones, the SEZ also has a DTA for catering to
the demand of domestic industries.
It has also received notification for its proposed Biotech SEZ of 52 acres in Thane. It has appointed the master planner and architect for this SEZ
project and the construction of this SEZ is likely to start in FY09-10. Further, land acquisition is underway for its 3,000-acre multi-product SEZ at
Karla, Pune.
It is the only real estate stock which has net cash in its books. The stock trades at 4.1x FY10E EPS of Rs27.5. Our SOTP valuation stands at
Rs575/share.
NTDOP Performance vs Benchmark
Performance Snapshot
20.00
10.00
0.00
-10.00
-20.00
-30.00
6.81
7.30
Next Trillion Dollar Opportunity Strategy
CNX MIDCAP
As on 31st March, 2009
1.67
-8.78
-18.99
-30.33
-40.00
-50.00
-60.00
1 Month
3 Months
6 Months
-36.71
-45.40
-42.00
-51.14
1 Year
Since Inception
PMS Inception Date : 11 Dec. 2007.
PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670

Focused Strategy – Series I
Strategy Objective
The Strategy will aim to invest in fundamen-
tally sound companies that can benefit from
a rerating. To increase the prospects for out
performance, the portfolio will exhibit a pref-
erence for companies that may have been
overlooked or are out of favour.
Investment Strategy
• Bottom-up stock selection approach
• Stocks with re-rating horizon of two years
• Preference for out of favour stocks
• Concentrated portfolio structure
Other Details
Portfolio Manager : Mr. Sachin Abhyankar
Benchmark: BSE 200
Investment Horizon: 2 Years
Portfolio Managers Commentary
During the month of March 2009, there was no transaction in this Strategy.
Focus series-I PMS vs Benchmark
Performance Snapshot
20.00
10.00
0.14
0.00
-10.00
-20.00
-30.00
-40.00
-50.00
1 Month
3 Months
6 Months
-41.93
Since Inception
-2.47
-1.40
9.14
Focused Strategy
BSE 200
As on 31st March, 2009
-17.44
-26.69
-28.50
PMS Inception Date : April 2008.
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PORTFOLIO MANAGEMENT SERVICES
REGN. NO. : PMS - INP 000000670