>INDIA STRATEGY(The next Asian Tiger)(UBS)

India—the next Asian tiger
􀂄 India provides significant potential for investors
1) We believe India’s economy could be entering a golden period—we expect real
GDP growth of 8-9% pa for the next 10-20 years. 2) The stock market is relatively
liquid (US$5bn average traded value) with several diversified sectors.
3) Penetration levels for most products and services are relatively low, implying
ample room for high-growth investment ideas. 4) Attractive demographics and a
high savings rate imply that demand for equity stocks and mutual funds is likely to
multiply in the next 10-15 years.
􀂄 Four themes: consumption; leverage; infrastructure; equity investment
We have identified four investment themes: 1) the consumption boom, driven by
low penetration, attractive demographics, and strong economic growth; 2) low
household leverage, which is likely to change and translate to higher demand for
financial services; 3) higher infrastructure investment—we estimate infrastructure
investment of US$2.5trn in the next 15 years; and 4) greater potential demand for
equities, as India’s relatively high household savings could be channelled into the
equity markets.
􀂄 March 2011 Sensex target of 20,000
Our March 2011 Sensex target of 20,000 is based on a forward PE multiple of
14.9x on FY12E EPS. We forecast a Sensex earnings CAGR of 12% in the next
15-20 years. Assuming a long-term average PE multiple of 15x, the Sensex could
reach a level of 100,000 by FY25 (it is 16,741 currently). Key overweight positions
in our model portfolio are: Maruti Suzuki India, public sector banks (Bank of
Baroda, Punjab National Bank and Union Bank), Unitech, Indiabulls Real Estate,
Infosys Technologies, Tata Consultancy Services, Tata Power, ACC and JSW
Steel.

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