April 2015

Indian Economy Improving Fundamentals

GDP growth to improve to 7.7% in FY2017 from 7.6% expected in FY2016;  Consumption demand to pick up due to: Declining inflation, Pick-up in employment and One-time 7CPC impact (government to pump in INR 1.2 lakh crores)  Agriculture output may normalize assuming normal monsoons after two years of insufficient rainfall  Investment demand to pick up from 2HFY17 based on on-going reforms, lower interest rates, new orders in road and railway sectors  Government spending has picked up; higher capital expenditure over the next few years depending on improvement in fiscal position India GDP

Top drivers of consumption in 2016

Lehmann crisis Pay Commission…

NIFTY 50 – FYTD Performance 3 rd March th Feb (23% Correction)

 China Bubble - Devaluation of currency  FED Rate Hike – Impact on global liquidity  Oil Crash - GEM Funds face redemption pressure  India – Reforms not in pace with expectations  Earnings of ‘Indian Companies’ not improving  India – Not decoupled in near term What Impacted Indian Markets?

Recent correction.. Not new? From Peak to Trough Broad Reason for the market crash From Trough to New Highs FromToDaysLoss FromToDaysGain 22-Jul-8528-Mar % 28-Mar-8822-Apr % 22-Apr-9226-Apr %Harshad Mehta scam 26-Apr-9312-Sep % 12-Sep-9420-Oct %1996 Crisis 20-Oct-9811-Feb % 11-Feb-0021-Sep %IT bubble burst 21-Sep-0114-Jan % 14-Jan-0417-May % 17-May-0410-May % 10-May-0614-Jun %Short term correction 14-Jun-068-Feb % 8-Feb-075-Mar % Short term correction 5-Mar-078-Jan % 8-Jan-089-Mar %Lehman crisis 9-Mar-095-Nov % 5-Nov-1020-Dec % 20-Dec-1129-Jan % 29-Jan-1512-Feb % What Next??? GAINING NEWER PEAKS S&P BSE Sensex – Historical Peaks-Troughs-New Peaks

Long Term Earnings Growth = Long Term Share Price Growth

Earnings drive stock price Nifty EPS (Rs) Index Value CAGR (%) Note: Fiscal Year Ends; Source: MOAMC, Capital Line, Bloomberg 15.4% CAGR over 10 years means that Rs 1 cr would have become Rs 4.17 crs!!!

Markets eventually return as much as growth in earnings… …but we must note markets are more volatile than earnings…!!!

Note: Quarterly data. Source: MOAMC, Capital Line PAT Growth: 27%; Stock Price: 34%; Nifty 50: 13% PAT Growth: 12%; Stock Price: 24%; Nifty 50: 14% Earnings drive stock price

Sharp correction in valuations…

Motilal Oswal PMS An Update - Why now ??

Our investment philosophy – ‘Buy Right : Sit Tight’ At Motilal Oswal Asset Management Company (MOAMC), our investment philosophy is centered on 'Buy Right: Sit Tight‘ principle. Buy Right Sit Tight  ‘Q’uality denotes quality of the business and management  ‘G’rowth denotes growth in earnings and sustained RoE  ‘L’ongevity denotes longevity of the competitive advantage or economic moat of the business  ‘P’rice denotes our approach of buying a good business for a fair price rather than buying a fair business for a good price  Buy and Hold: We are strictly buy and hold investors and believe that picking the right business needs skill and holding onto these businesses to enable our investors to benefit from the entire growth cycle needs even more skill.  Focus: Our portfolios are high conviction portfolios with 20 to 25 stocks being our ideal number. We believe inadequate diversification but over-diversification results in diluting returns for our investors and adding market risk QGLP

Value PMS – Q2 earnings growth Average earnings growth of Value Strategy has been 24% during Q2FY16 versus negative growth of Nifty 50 Index Company Name Q2FY15 (Crs.)Q2FY16 (Crs.)Y-o-Y Change Net SalesPATNet SalesPATNet SalesPAT Asian Paints3, , %15% B P C L61, ,4231,018-25%119% Bharat Forge1, , %0% Bosch2, , %0% Eicher Motors2, , %55% H D F C11,6082,06412,5212,1078%2% HDFC Bank5,5112,3816,6802,86921%20% Hero Motocorp6, , %1% Kotak Mahindra Bank4, , %31% Larsen & Toubro21, , %16% State Bank of India61,0994,02466,5864,9929%24% Sun Pharma7,9792,0506,8031,107-15%-46% TCS23,8165,24426,6016,08512%16% United Spirits2, , %L to P

Value PMS – Q3 earnings growth As on 12 th February 2016 SecurityQ3 YoY Earning growth % Sun Pharmaceuticals 259% Eicher Motors 76% Bosch 99% HDFC Bank 20% Asian Paints 35% Bharat Petroleum Corporation 170% Tata Consultancy Services 14% Kotak Mahindra Bank 32% HDFC Ltd 7% Bharat Forge -14% Hero Motocorp 37% Interglobe Aviation (Indigo) 88% State Bank of India -71% Larsen & Toubro 19% United Spirits 5% Weighted average portfolio earnings growth is 71% (59% ex BPCL)

Value PMS - Performance since inception The chart below illustrates Rs.1 crore invested in Value PMS in March 2003 is worth Rs crores as on 31 st January For the same period Rs. 1 crore invested in Nifty 50 is now worth Rs crores. Strategy Inception Date: 24/03/2003. Please Note: The Above strategy returns are of a Model Client as on 31 st January Returns of individual clients may differ depending on time of entry in the strategy. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. Strategy returns shown above are post fees & expenses X 7.48X Investment Value

NTDOP PMS – Q2 earnings growth The average earnings growth of NTDOP Strategy has been 28% during Q2FY16 versus negative earnings growth of Nifty Midcap 100 Index Company Name Q2FY15 (Crs.)Q2FY16 (Crs.)Y-o-Y Change Net SalesPATNet SalesPATNet SalesPAT Bajaj Finance1, , %42% Bharat Forge1, , %0% Bosch2, , %0% City Union Bank %15% Colgate Palmolive , %21% Container Corpn.1, , %21% Cummins India1, , %-2% DCB Bank %-10% Eicher Motors2, , %55% Emami %30% Engineers India %18% GSK Consumer1, , %37% H P C L51, , %P to L IPCA Labs %-80% J & K Bank1, , %14% Max India %L to P Page Industries %21% Speciality Restaurant %-57% Voltas969501,060449%-11%

NTDOP PMS – Q3 earnings growth As on 12 th February 2016 Weighted average portfolio earnings growth is 39% (ex HPCL) SecurityQ3 YoY Earning growth % Bajaj Finance 58% Eicher Motors 76% Hindustan Petroleum Corporation Loss to Profit Page Industries 16% Bosch 99% Voltas7% MAX Financial Services 92% Kotak Mahindra Bank 32% Cummins India 5% Emami 13% GSK Consumer Healthcare 142% Ipca Lab 4% City Union Bank 10% Bharat Forge -14% Alkem Lab 17% Colgate-Palmolive 21% Container Corporation Of India -32% J&K Bank 13% Engineers India 4%

NTDOP PMS - Performance since inception The chart below illustrates Rs. 1 crore invested in NTDOP Strategy in December 2007 is worth Rs cr as on 31st January For the same period Rs. 1 crore invested in Nifty Midcap 100 Index is now worth Rs cr. Strategy Inception Date: 11/12/2007. Please Note: The Above strategy returns are of a Model Client as on 31st January Returns of individual clients may differ depending on time of entry in the Strategy. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. Returns below 1 year are absolute and above 1 year are annualized. Strategy returns shown above are post fees &expenses. 3.50X 1.47X Investment Value

Conclusion

 You can swim against the tide (i.e. make money in flat markets) … provided you have the requisite skills.  Eventually portfolios return as much as earnings growth but remember that share prices are more volatile than earnings.  The requisite skills come from a good investment philosophy, and pig- headed determination of practising it.  A good investment philosophy evolves after years of research, practice, and fine-tuning.  We believe our investment philosophy – QGLP and its continuous improvement – should help us deliver sustained superior performance. Conclusion

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