>SPECIAL ECONOMIC ANALYSIS: India and China: New Tigers of Asia

India to Outpace China's Growth by 2013-1
Special Economic Analysis

In our second report comparing India and China in 2006 (India and China: New Tigers of Asia, Part II dated May 29, 2006), we made a call that India had the potential to catch up with China
in terms of GDP growth rates. That time has come, in our view.

We believe that, over the next two years, India should start matching China’s GDP growth of around 8.5-9.5%, barring another global financial crisis. More importantly, we think that,
by 2013-15, India will start outpacing China’s GDP growth notably. Morgan Stanley’s Chief Economist for China, Qing Wang, believes that China’s growth will move towards a more
sustainable rate of 8% by 2015, following the remarkable 10% average over the past 30 years. We believe India’s growth will accelerate to a sustainable 9-10% by 2013-15, after an
average of 7.3% over the past 10 years. In other words, over the next 10 years, we expect India’s growth to outpace China’s.

Indeed, we expect India’s per-capita income to reach China’s 2009 levels of US$3,750 over the next 10-11 years. We believe India will see further rise in investments to GDP, particularly
infrastructure, and China will see a gradual rise in consumption GDP.

15BIndia Is Transitioning to Higher Sustainable Growth Rates India’s GDP growth has moved from a range of 6% in the early 2000s to 8-8.5% currently. We believe this shift has been
premised on three key factors.

First, the improvement in demographics as measured by declining age-dependency (the ratio of the dependent population size to the working-age population size) has been the most important factor supporting this acceleration in growth. The ratio of the number of elderly people and children to the working-age (aged 15-64 years) population has declined from 68.6% in 1995 to 55.6% in 2010, according to United Nations (UN) estimates. In other words, the working-age
population has been growing faster than has the dependent population. This has helped support a structural rise in domestic savings.

Second, structural reforms have improved the utilization of the working-age population, a key resource. A positive demographic trend may be a necessary condition for strong growth, but it is not sufficient alone. Favorable demographics need to be converted into a virtuous cycle of acceleration in growth. A critical step in this process is the opening up of productive job opportunities through reforms. Over the years, India’s government has been initiating reforms to encourage private sector investment, which helps create the platform of employment for the working-age population. In this context, one of the long-standing challenges for India was acceleration in infrastructure spending. The government has finally been able to address this.

To read the full report: SPECIAL ECONOMIC ANALYSIS

>INDIA STRATEGY: Identifying emerging winners for 2015

Are leaders born or made? It is clear that in the context of a dynamic, rapidly evolving stockmarket like India, both can be true. Some have indeed been born out of favourable social and regulatory changes, but most have been made from anticipating major themes and evolving strategies to take them well ahead of their peers. This report selects an Indian XI for 2015 - a set of 11 stocks that will become market or sector leaders in the next five years. Some will leap from being small/mid caps today to large caps.

India is a true ‘emerging’ market and comparisons with developed economies like the USA, as well as some in Asia, underscore the contrasts in evolution. The benchmark BSE Sensex has seen two-thirds of its constituents change over the past decade. While much of this can be attributed to a fast-changing economy, modifications in corporate structure have also contributed. For
investors, the meaningful alpha-generation potential from anticipating who the new market leaders will be makes this very much relevant.

The rise of the metals and mining, and capital-goods industries are the best
reflection of large thematic shifts over the past decade. However, changes to
the leading stocks in the market or in specific sectors are also a function of
initial conditions, including the extent to which indices accurately reflect
economic activity, and prevailing biases towards sectors. Thus the impact of
the consumption boom has been relatively diffused and richly valued staples
have been among the worst performers. Within sectors, high or rising ROIC
appears a key factor for stocks to sustain or ascend to leadership positions.

While the first wave of the consumption/investment story may have played
out, specific dimensions of the investment themes - the J-curve impact and
the gains from lagged infrastructure spending - will remain significant stockprice
drivers. Regulatory arbitrage will be limited to niche opportunities. India
Inc’s newfound urge to redefine boundaries, through M&A or otherwise, will
also be a significant driver of market-leadership transformation, as will be the
final wave of public-sector-undertaking (PSU) listings.

We have selected our Indian XI for 2015 - a basket of stocks that are likely to
move towards market or sector prominence - by identifying those geared into
these themes and those well positioned strategically to run ahead of peers.
We have set the threshold Cagr for expected stock performance at 20%.

To read the full report: The new leaders

>Why SOE Banks Remain Top Picks Among Asian Banks

Despite their run-up, we think Indian SOE banks still offer significant upside potential: When we look at historical multiples, SOE bank stocks are trading at close to all-time highs. However, in our view, that may not necessarily be the right metric for this group. Historically, they were growing at a much slower pace than system and underlying profitability (ex bonds) was very thin. However, things have changed.

SOE banks have changed meaningfully over the last 4-5 years: The market share loss (in loans, deposits and fee income) has abated. Private banks are now growing at a few percentage points more than SOE banks, rather than the 2-3x we saw in the mid-2000s. Moreover, while bond-related revenues collapsed (from 40% of revenues in F2005 to 12% in F2010), underlying
profitability has picked up. Core business contributed only 0.4% to ROA in F2005 – it is now closer to 0.9%.

With market share loss stemmed and growth profile/underlying profitability improved – we think these stocks can trade at higher than historical multiples. We are raising our 12-month price targets very aggressively – they now imply 30-50% upside for our coverage stocks: This sounds high (especially following a 70% run-up in the last 12 months), but it implies that these stocks will still trade at 6.5-10x our estimates of forward earnings and 4-6x PPoP in 12 months. We had an OW on all SOE banks except OBC and Canara – which we are also upgrading to OW. We would buy a basket of SOE banks (in our coverage).

All Indian SOE banks combined (77% of the nation’s banking system) have market cap less than Bank Itau in Brazil (and obviously each of the big four Chinese banks). This seems unsustainable to us given the improved profitability and growth profile at SOE banks. These stocks will be volatile (bond moves, asset quality concerns), but on a structural basis, we believe that this
is the top segment within Asian banks.

To read the full report: INDIAN FINANCIAL SERVICES

>RELIANCE INDUSTRIES LIMITED: Time for a relook, we see 24% upside from current levels

RIL has underperformed the Sensex by 19% since April of this year, which the steepest
underperformance in the stock over the last six years. The under performance has been driven by i) KG D6 production stalling at ~60 mmscmd, ii) uncertainty around refining and petrochemical margins and iii) RIL’s foray into telecom and hotels. We believe however, that the bad news around the stock has been more than priced in and the stock should rally smartly from here, aided particularly by good news on the gas pricing front (overall domestic gas prices rising) and exploration business globally (more shale acquisitions).

■ Refining and Petrochemical pressures now fully reflected
The cyclical downturn in refining and petrochemical demand, coupled with the simultaneous record increase in capacity worldwide has led to one of the most severe slump in margins for a long time. However we believe that the last few months have shown signs of a substantial turnaround, with Singapore benchmarks rising and the improvement in Arab Heavy Light Spreads. The closures of unviable standalone refineries in Europe should further help the demand supply balance going forward (~1.5 mb/d of capacity shut in over the last few months)

To read the fulll report: RIL

>BILCARE LIMITED (ANAND RATHI)

■ Investment Theme Innovation driven by R&D is key driver for the growth of all the business segments of this company.The major contributor is and will remain the Pharma packaging solutions, which accounts for 85% of sales

■ Company offers comprehensive range of innovative packaging solutions, consisting of – blister films, aluminumfoils, cold formed blisters and wrap systems.

■ Apart form domestic demand, major growth will come from US markets, where shifting from bottles to Blister packaging will boost demand for its products.

■ Company is ready to tap this potential with required DMF filings and FDA approvals. Another important growth area will be – Global Clinical services business. Here company is offering various services in clinical trials phase to cut costs as well as time period, with its innovative products & services.

■ Company caters to 35‐40 global clients for 60‐70 drugs in various stages of clinical trails and these numbers are likely to grow significantly in coming years. This will be the fastest growing segment with highest margins.

■ Company has developed anti counterfeit solutionsin packaging using non clonable security technology (NST)which can revolutionize the packaging arena,by offering solutions across number of industries to ward of the menace of piracy.

■ Company’s recent US acquisition is earnings accretive and drive the top line and bottom line significantly.

We think stock is highly undervalued and deserves re‐rating. Market is not giving any valuation to this company for its strong R&D capabilities and unique patented technologies. Acquisition led inorganic growth is yet to be discounted. BUY with target of Rs 950/‐ in 12 months.

To read the full report: BILCARE LTD

>INFRA BEESInfrastructure Benchmark Exchange Traded Scheme

Investment Objective
The investment objective of the Scheme is to provide returns that, before expenses, closely
correspond to the total returns of the securities as represented by the CNX Infrastructure
Index by investing in the securities in the same proportion as in the Index.

However, the performance of Scheme may differ from that of the Underlying Index due to
tracking error. There can be no assurance or guarantee that the investment objective of the
Scheme will be achieved.

Investment Pattern
Upto 100% of net assets in Securities covered by the S&P CNX Nifty Index; Upto 10% of net assets in Money Market instruments, convertible bonds & other securities including cash at call but excluding subscription & redemption Cash Flow

An Open-ended, exchange listed, Index Scheme

Terms of Issue
On NSE, the units of Nifty BeES can be purchased/sold in minimum lot of 1unit and in multiples
thereof. Directly with the Fund - The minimum number of units of Nifty BeES that investors can
create/redeem in exchange of Portfolio Deposit and cash component is 10,000 units and in multiples thereof.

Load Structure:
Entry Load : Nil
Exit Load: Nil

To read the full report: INFRA BEES

>RELIANCE CAPITAL: Q1 FY 11 result performance

During the quarter ended June 2010 reliance Capital posted a consolidated total Income of Rs 12.6 billion which was down by 13.7% on Y –o- Y basis and down by 26% on Q –o- Q basis. The total income was down due to lower capital gains and reduction in topline of general insurance business. The company posted a net profit of Rs 770 million which is drastically down by 49% on Y –o- Y basis but is up by 19.4% on Q –o- Q basis. The profit was down due to fall in AUM and loss in insurance business.

Strong contender for banking licence
Reliance capital is interested in banking license for quite some time. The finance minister in the budget has announced to give new banking licence. Reliance capital is currently a key contender for the banking license, as it will be source of low cost funds which is key requirement for the growth of business.

Strengthening broking business
Reliance capital's subsidiary 'Reliance securities' is looking to increase its employees strength to 1,400 from 800 at present, the company is also targeting to reach 10,000 franchisees in next 2 years. The company having a customer base of 6,50,000 is planning to invest around Rs 30 to Rs 40 billion in coming 2 to 3 years to improve technology and risk management capabilities, and to introduce new retail equity products, the entire spending would come from internal accruals.

India’s Largest mutual Fund
Reliance mutual fund is currently the India’s largest Mutual fund with 15% market share. Reliance Capital Asset management currently manages Rs 1.4 trillion across MF, Pension funds, managed accounts and hedge funds.

Valuation
We have done a SOTP based valuation for the company and valued the various business segment of the company on different parameters. We arrive at target price of Rs 868 for reliance capital. At current market price the stock is trading at 2.61x its FY 10 book value and at our target price it will trade at P/B multiple of 2.8x.

We recommend BUY with investment horizon of 6 to 12 months.

To read the full report: RELIANCE CAPITAL