Question Answers Fine

ANSWERS YOU ALWAYS WANTED TO KNOW The last one-week has probably been a very trying one for all of us. Time and again our patience and faith in the Indian Equity Markets has been tested. Being an investor however calls for a lot of discipline and rationalism, as opposed to being a trader who is associated with short term outlook and crowd mentality. It is with this brief background in mind that I am attempting to answer some of the critical and repeated questions that would have been raised by your investors. Q1. You never told us to sell when the markets were at 21,000 levels? Rather you were saying that in long term one can get 15%-20% returns? The markets were reasonably overvalued at 21,000 levels. We said the same thing in the "The Fundz Watch" issues of November, December, January; Equity Markets, Outlook. When the markets were at 21,000 levels our PE traded in the range of 24-26 and there was some amount of overvaluation. But this was not a shocking figure because when markets have been in rising times/bull runs they have also gone up to a PE of 50 in past. There were also chances of the markets reaching 30,000 and then falling down. Hence, it is always difficult to give an exit call unless markets are unreasonably valued (like a PE of 45-50). No one can predict the market and hence following asset allocation methodology (it is the proportion of ones investments of the total portfolio in a particular asset class) would have enabled one to book profits automatically which we have always been emphasizing. Profit booking in equity is not only a function of market valuation but also a function of how much exposure one has into equity markets. Because it is the exposure of overall portfolio that matters. More so we never expected a substantial correction because the profit growth projections were looking robust. We were talking to be cautiously optimistic and invest through SIPs or STPs and rebalance asset allocation if your substantial portion of money was invested in Equities. Had you invested through SIPs rather than lump-sum what would have been your position? The following table will give you an idea of how your downside would have reduced by following the SIP route. Scheme Name

Total Amount Value of Lump Invested sum Investment

% loss

Value of SIP Investment

% loss

Birla Sun Life Equity Fund - Gr

100,000

39,411

60.59%

59,813

40.19%

DSPML Top 100 Equity Fund Gr

100,000

50,084

49.92%

67,629

32.37%

Fidelity Equity Fund HDFC Equity Fund - Gr. HDFC Top 200 - Gr. ICICI Prudential Dynamic Plan-Cum

100,000 100,000 100,000 100,000

46,404 46,752 49,977 47,213

53.60% 53.25% 50.02% 52.79%

64,080 64,917 66,152 62,400

35.92% 35.08% 33.85% 37.60%

Kotak 30 Gr

100,000

44,531

55.47%

62,200

37.80%

Reliance Growth Fund Gr Reliance Vision Fund Gr

100,000 100,000

41,986 43,136

58.01% 56.86%

61,190 63,122

38.81% 36.88%

Average of schemes (53 schemes)

100,000

41,512

58.49%

60,204

39.80%

SIP @ Rs. 10,000 pm. For Jan-2008 to Oct 2008; Lump-sum investment of Rs. 1 Lac is done on Jan 10, 2008

We still continue to believe that the investments made at peak market levels shall deliver at least 10% returns for a period of 5 years There is logic behind this; without significant FII participation our markets had returned 17% from 1979 to 2000. With FIIs having pulled out a significant amount of money and economic growth continuing to grow (may be at a slightly slower rate from here on) we will still see the markets rising in the long run. This is simply because the emotions may rule in the short run but in the long run it is the profits alone that will drive the valuations.

India Invest www.njindiainvest.com

Q2. At 14,000- 15,000 levels you aggressively came to us and said there is a limited downside and you should start investing; markets are looking very attractive? The journey of 21,000 to 15,000 was on account of: - Rise in commodity prices mainly oil price which touched 150 Dollars per barrel - Rise in commodity prices brought inflationary pressure resulting into slower growth rates We believed that markets got corrected significantly and rise in commodity prices were mainly due to speculative positions rather than genuine demand. (Read Fundz Watch Editorial "Boiling Oil", June 2008 edition) We factored the scenario and in that scenario even the projected growth rates were lowered from 9% to 7%7.5% and even such growth rates are very attractive from equity standpoint. We believed that the market correction was healthy and was consolidating the market for new growth trajectory (till 14,000 levels). We expected a downside of 10%-15% from these levels due to factors such commodity prices, inflationary pressure etc, but not beyond that. We said that in the next 5 years from 14,000-15,000 levels the markets would likely double i.e. in the range of 30,000-35,000 levels and to invest in staggered manner. We knew the likely destination but not the route the markets would take. The journey of 14,000 - 9,000 is answered in the next question. We still continue to believe that the markets will be around 30,000 - 35,000 levels in the next five years Q3. Today also you are saying to invest but people say the economy has entered into a medium to long term recession. We have already lost significant portion of our capital, how do you expect us to invest now? The fall from 14,000 to 9,000 has been on account substantial liquidity issues rather than any fundamental issues. It started from the announcement of bankruptcy of Lehman Brothers on 15th September at 11.30 hrs IST and markets were at 13,500. FIIs pulled out close to Rs 20,361 crores of Equity investments in the month of Sept-Oct. If we see the YTD 2008 figures, FIIs have pulled out Rs. 48,875 crores of Equity Investments. This is one of the reasons for the sudden fall in the markets. (Data as on October 24, 2008). The market cap of FIIs at peak was close to 300-400 billion dollars and currently the FIIs have around 50 billion dollars market cap in the Indian Markets. Significant downside has come because of distress selling, still some further selling may take place but we believe that 90% of the selling has already happened. Projecting market bottom would be difficult but we believe the distress selling to get over within next 10 to 15 days. Markets are at all time lows with trailing P/E multiples of 10-10.5 times at 810 EPS and at 900 EPS on March' 09 the P/E works out to be around 9 to 9.5. This is an extraordinary situation and what has happened in US and other global markets does not impact Indian fundamentals in any big way (can refer the article posted on 23rd October). The Indian stocks are available extremely cheap. We strongly recommend BUYING INDIA... and average out.

India Invest www.njindiainvest.com

We are not trying to give any explanation to our 9 Lac customers and 10,000 advisors who have trusted NJ always and we really feel the pinch much more than probably what you are experiencing because of such a sudden meltdown and extraordinary situation. But such a situation was beyond our comprehension and it has taught us many more things. Our CUSTOMERS' MONEY and wealth is very important to us and our commitment towards working for customers' wealth creation shall only strengthen in the days to come. During most of the bull runs it is the FIIs and promoters who make money, but in the next one we will put all our learnings to ensure that all our customers shall create wealth and make money which is the only endeavor of NJ. At this hour of time, you would find this rhetoric but TEAM NJ seriously means it. The losses that are being observed presently are notional and with time we are sure the losses will go out and gains shall start. Mutual fund equity schemes have managed to generate decent returns even in such distressed market condition. Even after current market meltdown, diversified equity schemes have managed to outperform the benchmark indices by a wide margin. The following table shows the returns generated in the Last five years: Particulars

Returns 5 years

DSPML Top 100 Equity Fund Gr

23.03

DSPML Equity Fund - Reg. Plan - Div

24.72

HDFC Top 200 - Gr

22.19

Sundaram BNP Paribas Select Focus - Gr

23.10

Sundaram BNP Paribas Select Midcap - Gr

25.85

Reliance Growth Fund - Gr

29.29

Average of Diversified Equity Funds

18.35

BSE 30

12.82

NSE 50

11.30

Small investments by all of us can make a large difference; just think rationally and start because this is a kind of a once in lifetime opportunity to buy QUALITY BU BUSINESS SINESS at abnormally low prices.

India Invest www.njindiainvest.com

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