>INDIA STRATEGY CHARTBOOK (MORGAN STANLEY)

Keep Buying the Dips

• India Is in a Sweet Spot
With relatively low institutional ownership, strong global and local liquidity, the prospective bottoming out of the growth cycle, reasonable policy momentum, the coming recovery in earnings growth, strong corporate balance sheets, stable politics, and fair valuations, Indian equities are in a sweet spot. We would continue to buy the dips in the market. Our June 2010 target for the Sensex of 17,000 implies a return of 15%. Our bull-case scenario takes the market to an all-time high in 12 months.

• Risks: Global and Local
The local risks are a failure of the monsoons, a surge in crude oil prices, failure on policy execution, and too much equity supply, where the global risk is another round of financial market difficulties. While valuations are not at levels that can completely absorb these shocks, we are comfortable taking risk given India’s better relative position in a world facing tepid growth rates and the low probability we assign to all these events happening at the same time.

• Our Portfolio Position: Moderately Aggressive
The only reason why we keep some dry powder is that we are unsure of the global situation. If the global economies improve, there is scope for more aggression with our portfolio. In the meanwhile, we believe that consumer and infrastructure sectors will lead the growth recovery and, hence, market performance. Accordingly, we are overweight Consumer Discretionary and Industrials in our model portfolio.

To see full report: INDIA STRATEGY CHARTBOOK