Market Review. L&T Investment Management Ltd. September 2011

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1 Market Review L&T Investment Management Ltd September 2011

2 Macro Economics

3 US Loses AAA Rating S&P cuts US sovereign rating from AAA to AA slamming the nation s political process and criticizing lawmakers over record budget deficits IMF cuts its US growth forecast for 2011 growth to 1.60% from a 2.50% earlier forecast and trims its Euro zone 2011 growth forecast to 1.9% from 2% US Fed chairman Ben Bernanke hints that there will no QE3 at least for the time being. But based on the basis of the latest jobs data release, the pressure on the US fed to stimulate the economy is rising. US congress passes a bill to raise db debt ceiling from USD 14.3 trillion by USD 2.1 trillion and simultaneously cut spending by an equivalent amount Moody s Investors Service lowers Japan s debt rating one step to Aa3 with a stable outlook India s Q1 GDP growth slows to 7.7% as against 8.8% growth for same period last year

4 Key Global Economic Data Releases US Unemployment rate remains unchanged at 9.1% with total no. of unemployed persons at 14 mn ISMM Manufacturing for August tfalls to from last month US consumer confidence plunges to 44.5 in August to its lowest since recession from 59.2 last month Euro-zone Euro Area GDP grows by 0.2% in second quarter compared to 0.8% in first quarter Markit composite PMI for Euro Zone falls to 50.7 in August from 51.1 in July Unemployment rate in Euro Zone remains stable at 10% Asia Japan s economy contracts 1.3% in second quarter, while exports declines by 3.3% in July 2011 from a year ago China posts record trade surplus of USD bn in July as against USD bn in June, while FDI in China climbs 19.8% to USD 8.3 bn in July 2011 from a year ago

9% (revised) last month Eight Infra Industries Posts growth of 7.

5 Key Domestic Economic Data Releases Industrial production Grows by 8.8% in June against rise of 5.9% (revised) last month Eight Infra Industries Posts growth of 7.8% in July against 5.2% rise in June Exports & Imports Exports jump by 81.8% in July to USD bn Imports surge by 51.5% in July to USD bn Source: Mospi

Continue Headline WPI inflation At 9.22% for July against 9.

6 Continue Headline WPI inflation At 9.22% for July against 9.44% for June Rupee depreciates By 4.3% over the month to Rs against US dollar Source: Mospi Forex reserves climbed USD 1.42 bn to USD318.22bnasonAugust19from July 22 Bank credit Stands at Rs 40,48,457 crs as on August 12, rise 1.10% 10% over the fortnight and moves up 20.2% over the year Source: Bloomberg

68% during the month to 3,618.33 Oil prices plunges 7.

7 Commodity Prices Show Divergent Trend Reuters Jefferies CRB Index up marginally 0.14% over the month to MCX Comdex climbs 2.68% during the month to 3, Oil prices plunges 7.20% over the month to Gold prices jump USD a barrel 12.15% 15% during the month to Source: Bloomberg USD 1, an ounce

8 Equity Market Review

9 Global Markets Plunge MSCI AC World drops 7.53% while MSCI Emerging Markets plunges 9.19% Dow Jones moves down 4.36%, while FTSE falls 7.23% Nikkei plummets 8.93% while Shanghai Composite declines 4.95% Source: Bloomberg

10 Indian Equities Follow Suit Sensex, Nifty drop By 8.36% and 8.77% respectively Top 3 Losers Tata Motors, Sterlite & Tata Power Plunge 21.71%, 19.54% and 18.84% respectively BSE Mid & Small cap underperform larger counterparts Mid-caps index drops 9.28% while Small-caps index drops 14.14% Source: BSE/ NSE

11 Sectors in Limelight All BSE sectoral indices register adrop Realty, Metal, IT and Bankex fall the most With drop of 14.78%, 13.70%, 13.26%, and 12.40% respectively Source: BSE

12 FII Flows Turn Negative FIIs Turn net sellers in equities worth Rs 10, crs (USD 2.4 bn) in August MFs Remain net buyers in equities worth ot Rs 2, crs cs (USD 547 mn) in August Source: Sebi

13 Sensex Drivers Major negative contributors Scrip Name Chg in Index Points Infosys, ICICI Bank and SBI Infosys (255) ICICI Bank (233) SBI (129) RIL (103) Leading positive contributors Tata Motors (95) Tata Steel (80) Hero Motocorp, Bajaj Auto and M&M L&T (79) Hero Motocorp 32 Bajaj Auto 19 M&M 11 Source: Bloomberg

14 Outlook Indian equity markets fell in line with other emerging markets in August factoring in slowdown in US and European economies. Global situation remains very fluid as data emerging from US showing stagnating industrial activity and lack of new job creation, this may result in extended period of low risk aversion and may impact flows to emerging markets. While domestic economy is showing slowdown, Sensex valuations at 13x FY13 earnings is in comfort zone. Markets will be closely watching RBI s action in next monetary policy meet in Sept apart from accelerating economic reforms by the Government. We advise investors to use systematic investment plans to increase their holdings in We advise investors to use systematic investment plans to increase their holdings in equities.

15 Debt Market Review

16 Global Bond Yields Fall US 10-year treasury yield drops 57 bps to 2.22% Yield on 10-year European govt bond moves down 32 bps to 2.22% However, in Japan 10-year govt bond yield falls 5 bps to 1.03% Source: Bloomberg

17 Indian Bond Yields Drop Highlights G-sec & corporate bond yields decline Short-term rates also register a fall Spread On 10-year G-sec and 10-year AAA bond moves up by 7 bps at 90 bps Source: Bloomberg

18 Short-term Rates Follow Suit Call Rates Remain stable at 8.05% Treasury-Bills (T-Bills) Yield on 91-day T-Bill unchanged at 8.40% 364-day T-Bill yield moves down Certificate of Deposits (CDs) Yield on 3-month CD unchanged at 9.13% 1-year CD yield moves down 23 bps to 9.57% Commercial Papers (CPs) 19 bps to 8.31% Yield on 3-month CP declines 8 bps to 9.40% 1-year CP yield slips 21 bps to 10%

19 G-Sec Yields Slip 10-year G-sec yield Drops 13 bps to 8.32% Yield on 5-year G-sec Moves down 12 bps to 8.33% Short term 1-year G-sec yield Falls 5 bps to 8.33% Spread On 1 & 10-year G-sec declines by Source: Bloomberg 8 bps

41% Short term 1-year AAA yield Moves down 13 bps to 9.

20 Corporate Bond Yields Move Down 10-year AAA yield Slips 6 bps to 9.40% 5-year AAA yield Falls 3 bps to 9.41% Short term 1-year AAA yield Moves down 13 bps to 9.40% Spread On 1 and 10-year AAA bond widens by Source: Bloomberg 7 bps

21 Outlook Debt market will take cues both from global as well as domestic factors. Gilt yields are expected to remain range bound at current levels. Short term rates may go up on back of advance tax outflows, CD rollover issuances and MF redemptions. RBI is expected to hike key rates by 25 bps, however, a pause can lead to fall in Gilt/ bond and short term yields.

22 Disclaimers Disclaimer: This document including market update has been prepared by L&T Investment Management Limited (LTIML) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any securities/ instruments or any of the Schemes of L&T Mutual Fund. Market views expressed herein are for general information only and do not have regards to specific investment objectives, financial situation and the particular needs of any specific person who may have receive this information. These views alone are not sufficient and should not be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions and estimates included here constitute our view as of this date and are subject to change without notice. Neither L&T Investment Management Ltd, nor any person connected with it, accepts any liability arising from the use of this information. The recipient of this material should rely on their investigations and take their own professional advice. Recipient of this document should understand that statements made herein regarding future prospects may not be realized. He/ She should also understand that any reference to the securities/ instruments/ sectors in this document is only for illustration purpose. The views expressed are of LTIML, neither this document nor the units of L&T Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Statutory Details: L&T Mutual Fund has been established as a trust under the Indian Trust Act, 1882 by L&T Finance Limited (liability restricted to the seed corpus of Rs. 1 lakh) with L&T Mutual Fund Trustee Limited as the Trustee Company and L&T Investment Management Limited as the Investment Manager. Risk Factors: Mutual funds and securities investments are subject to market risks and the NAV of the Schemes of the Fund may go up or down depending upon the factors and forces affecting the securities market. Investment in Mutual Fund Units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal. Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future performance of the Schemes. The Sponsor is not responsible or liable for any loss resulting from the operation of the Schemes beyond the initial contribution of Rs. 1 lakh made by it towards setting up the Fund. The names of the Schemes/Plans do not in any manner indicate either the quality or their future prospects and returns. There can be no assurance that the objectives of the Schemes/ Mutual Fund will be achieved. Please read the Scheme Information Document and Statement of Additional Information carefully before investing.

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