Way2Wealth

1. Way2Wealth Financial Markets & Investing July 2010 making investing simpler, more understandable and profitable.

2. Indian Financial Markets • Agenda • Why and How to Invest in equity • Indian Capita Markets - History, Exchanges & Performance • Other Derivatives • Regulator • Research • Outlook Financial Markets – Rationale, Players & Structure

3. Economic System • Surplus Money Generators • Households • Deficit Money Holders • Corporate • Government • Financial Markets • Savings Function - Channelize funds from -those who save to -those who needed -for productive purpose • Liquidity Function • Payment Function – • Risk Mitigations - Provides opportunities to various class of individuals and entities • Policy Financial Markets – Rationale & Players

4. Financial Markets – Broad Structure Financial Assets represent a claim to the payment of a sum of money sometime in the future and/or periodic payment in the form of interest or dividend. Provided resources needed by medium and large scale industries/individuals Purpose for these resources • Establishment of New Business • Expansion • Investments • Mergers and Acquisitions Deals in both short term & long term instruments & funds

5. Financial Markets – Global Snapshot • Firm commodities and return of the financials led FTSE score among the matured economies, closely followed by Dowjones • Hit by exports, firm currency and weaker domestic demand leave Nikkei 225 remain under performer among matured economies • Buoyed commodities Brazil tops the performers list among emerging economies, followed by domestic demand driven India • Though rest of Asia perform well, remain laggard in the latest months as exports remain moderate with signs of asset price inflation • Late reaction on both fiscal and other policy let Russian equity to be the under performer among the emerging economies 5

6. Financial Markets – Global Snapshot • Exchange at US and Europe continue top the total market capitalization • But the growth in capitalization is higher among Asian and Latin American countries • Key global indices are DJIA, Nasdaq Composite, FTSE, Nikkei, Hangseng, Sensex etc

7. Indian Financial Markets – Derivatives Performance

8. Indian Financial Markets – Derivatives Performance

9. Indian Financial Markets • Agenda • Financial Markets – Rationale, Players and Structure • Indian Capital Markets - History, Exchanges & Performance • Other Derivatives • Regulator • Research • Opportunities & Challenges • Outlook What and How to Invest in Equity

10. Equity Claim on the (profits) company Financial Markets – Concept Of Equity Why Company issue Shares • To rise capital • Equity Vs. Debt and Equity comes with less cost • To enhance the current business activity, acquire new or venture into a new area of business • To manage working capital • To gain the market share and increase the presence • Increase the visibility of the company 10

11. Financial Markets – Concept Investing What is Investing? Identifying and translating all the financial needs of an individual to monetarily measurable goals. Why do we need to Invest • To fund our future needs • To protect our future from unforeseen contingencies • To maintain the same standard of living even after retirement • To mitigate risk through diversification • To choose assets commensurate with the investors’ life and wealth stages • To beat the ravages of inflation 11

12. Financial Markets – Concept Of Investing Objectives Of Investing • Identify requirement for money for different purposes and prioritise the same • Converting requirements into need & in terms of money and time • Take stock of current financial position to ascertain, net worth & income/expenses • Plan savings and investments in a manner that enable one achieve the pre-determined goals • Optimise returns through adequate diversification in sync with the ones’ risk–return Can one individually chart Investment Plan? • Are you & your family are financially secure with the investments you have made • Do the cash flows arising from your investments be sufficient to match the expected expenses & are tax efficient? • Have you made adequate provisions for special purposes (Children’s education & marriage) If your answer is NO to any one or all of the above questions, you need a specialist to handle your finances and that is where the W2W helps your investments to grow 12

13. Financial Markets – Concept Of Investing Systematic Investing Equity markets are synonymous with uncertainty and volatility. The average investor invariably suffers from such market gyrations. Systematic investing is a strategy of not only preserving capital but also translating into substantial creation of wealth in long run • It simply means investing ‘Fixed Amount’ every month • A method of investing regularly to benefit from the stock market volatility • The first step towards achieving financial goals and objectives. • To imbibe financial discipline • To eliminate the need to time the markets • To successfully achieve the financial goals and objectives • To harness the power of compounding by investing with a long term perspective 13

14. Fluctuating Markets Declining Markets Rising Markets Systematic Investing Purchase Price Units bought Systematic Investing Purchase Price Units bought Systematic Investing Purchase Price Units bought 100 5 20 100 25 4 100 20 5 100 10 10 100 20 5 100 10 10 100 20 5 100 12.5 8 100 5 20 100 20 5 100 10 10 100 10 10 100 25 4 100 5 20 100 20 5 500 80 44 500 72.50 47 500 65 50 Avg NAV : Rs 13.00 (65/5) Avg. Unit Cost : Rs 10.00 (Rs 500/50) Avg. NAV : Rs 14.50 (72.50/5) Avg. Unit Cost : Rs 10.64 (Rs 500/47) Avg. NAV : Rs 16.00 (80/5) Avg. Unit Cost : Rs 11.36 (Rs 500/44) Financial Markets – Concept Of Investing Rupee Cost Averaging 14

15. Rate of Return Value at the end of 3 yrs Value at the end of 5 yrs Value at the end of 10 yrs Value at the end of 15 yrs 10% 2,08,909 3,87,185 10,24,225 20,72,352 12% 2,15,384 4,08,348 11,50,193 24,97,901 15% 2,25,578 4,42,873 13,76,085 33,42,534 Financial Markets – Concept Of Investing Power Of Compounding - Rs 5000 invested per month Golden Rules Of Investing • Invest early, regularly and systematically for a longer period • Ensure adequate liquidity for contingencies of life • Ensure adequate diversification by investing across asset classes and time horizons • Do not attempt to time the market. Patience is the key • Be realistic in expectations of returns • Balance investments in accordance with your risk-return framework 15

16. Indian Financial Markets • Agenda • Financial Markets – Rationale, Players and Structure • Why and How to Invest in Equity • Other Derivatives • Regulator • Research • Opportunities & Challenges • Outlook Indian Capital Markets - History, Exchanges & Performance

17. Indian Financial Markets – History History of Indian Stock Market • From Scattered and small beginning in the 19th Century, India’s stock market has risen to great heights • By 1990, we had 19 stock exchanges (national + regional) in the country • As a move towards integrated national level exchanges BSE & NSE became prominent by late 1990’s • BSE has the roots at Native shares and stock brokers association established in 1875, later recognized by GoI in 1956 • The launch of SENSEX in 1986 was later followed by BSE National Index (Base: 1983-84 = 100) Jan – 1989 • BSE National Index was renamed as BSE-100 Index from Oct- 1996 (taking into consideration only the prices of stocks listed at BSE) • The BSE has deployed an Online Trading system (BOLT) on March 14, 1995 • National Stock Exchange (NSE) got its recognition as a stock exchange in July 1993 under Securities Contracts (Regulation) Act, 1956 • NSE's leading index is Nifty 50 or popularly Nifty and is composed of 50 diversified benchmark Indian company stocks • Although late than BSE, National Stocks Exchange is currently the leading stock exchange in India in terms of total volume traded • Further liberalization India expected to see another one or two equity exchanges in the neat future

18. Indian Financial Markets – Growth • Indian market capitalization has registered a CAGR of 39.7 percent during 2002-2009 • Total listed companies in domestic exchanges registered a CAGR of 2.4 percent during 2002-2009 • Total New companies listed each year on exchanges registered a CAGR of 6.3 percent during 2002-2009 • Globalization, increased domestic retail & institutional participation resulted this phenomenal growth

19. 16.90% 16.02%02% 15.07% Fixed investment athighest sensex valueevery year Fixed investment atlowest sensex valueevery year Fixed investment on 1st day of every month Financial Markets – Performance Investing in the BSE Sensex – 25 years Data source: ICRA MFIE 19

20. Indian Financial Markets • Agenda • Financial Markets – Rationale, Players and Structure • Why and How to Invest in Equity • Indian Capital Markets – History, Exchanges & Performance • Regulator • Research • Opportunities & Challenges • Outlook Other Derivatives

21. Indian Financial Markets – Other Derivatives Commodity Futures • After much debate, commodity futures trading was permitted & exchanges were launched during 2003 -04 • Begin with precious metals the domestic commodity exchange offerings extended to all possible commodity segments a la BM’s, Softs, Cash crops, Edible Oils, Pulses and Spices • Despite various regulatory hurdles the average volumes in the commodity exchanges continued to grow very strongly - CAGR of 73.7 percent (INR 67.7 lakh crores) during 2004-2009 • Indian commodity exchanges are monitored and controlled by FMC, Ministry of Consumer Affairs & Agriculture ministry Currency Futures • After commodity futures, regulatory authorities have launched currency futures during 2008-09 • Started with single USD/INR pair now the currency futures are available in all major trading pairs like INR/GBP, INR/EUR & INR/JPY • Unlike the commodity futures, that showed a steady participation Despite various regulatory hurdles the average volumes in the commodity exchanges continued to grow very strongly • Indian currency futures are monitored by RBI & SEBI

22. Indian Financial Markets • Agenda • Financial Markets – Rationale, Players and Structure • Why and How to Invest in Equity • Indian Capital Markets – History, Exchanges & Performance • Other Derivatives • Research • Opportunities & Challenges Regulator

23. Indian Financial Markets – Regulatory SEBI – Securities and Exchange Board Of India • Set up by Government of India in 1988, it acquired statutory form in 1992 with SEBI Act 1992 Functions and Responsibilities Broadly, SEBI has to be responsive to the needs of various groups that are part of the financial market namely, • The issuers of securities – Companies • The investors – Retail, FII & Institutional • The market intermediaries – Brokerage Houses SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and quasi-executive Legislative - Drafts regulations Executive - Investigation and Enforcement of Action Judicial – Pass various rulings and orders SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis). SEBI has been active in setting up the regulations as required under law

24. Indian Financial Markets • Agenda • Financial Markets – Rationale, Players and Structure • Why and How to Invest in Equity • Indian Capital Markets – History, Exchanges & Performance • Other Derivatives • Regulator • Opportunities & Challenges • Outlook Research

25. Indian Financial Markets – Research • Other’s include derivative analysis (volume, OI and Put/Call ratio) • Top down approach – tracking economy, sector and company – long term investing • Bottom up approach – company, balance sheet, peer group comparison and industry – short term

26. Indian Financial Markets • Agenda • Financial Markets – Rationale, Players and Structure • Indian Capital Markets – History, Exchanges & Performance • Other Derivatives • Regulator • Research • Opportunities & Challenges Outlook

27. Indian Financial Markets – Funds Flow • As indicated earlier the capital flows remained stronger with FDI, FII and ECB turning positive since Q1 - FY09-10 • Though FDI and ECB remained below the previous peaks the hot money FII scaled close to the Sep’07 highs • Until the matured economies signal rate hike the capital flow remain intact thereby pushing the benchmark indices higher 27

28. Indian economy – GDP & Other Estimates • Generous rise in investments and emphasis on infrastructure led IIP growth bode well for the Indian growth momentum move from cyclical to structural • However, normalizing GoI incentives, monetary policy amid muted private consumption expenditure may call for moderation in the Q2 & Q3 of FY 2010-11 • Steady progress of monsoon, revival in the job market amid steady up tick in interest rates are expected to drive the private consumption to pick up as the FY 2010-11 progress • Despite ease in Food inflation (largely statistical) pick up in demand, limited capacity in short term, firm commodity prices globally expected to keep the inflation higher in the current cycle • Contagion of European crisis and untimely policy/inability to balance inflation/growth momentum are the key risk to the above outlook 28

29. Thank you Research Department Premise A, 15th Floor, Chandramukhi Building, Backbay Reclamation, Nariman Point (near Inox Theatre), MUMBAI : 400021 Phone: 022 4019 2900, Fax: 022 40192939